n 


You  and  Your  Broker 


YOUR  DUTIES  ^ND   RIGHTS   AS   CUSTOMER 
HIS    OBLIGATIONS    TO    YOU   AS   AN    AGENT 


A  Handbook  fir  inves- 
tors and  Traders  which 
Explains  the  Terms  and 
the  Methods  of  Brokerage 


COMPILED     FRO 
|    APPEARED   IN  THE 

M     ARTICLES     WHICH      HA\ 
MAGAZINE    OF    WALL   STREET 

FOREWORD 


HIS  booklet  is  compiled  solely  for  the  purpose 
of  educating  the  broker's  client  in  the  intricacies 
of  the  brokerage  business.  There  are  so  many 
chances  for  misunderstandings  between  broker 
and  client,  that  much  of  the  broker's  time  is  occupied  in 
explanation,  and,  on  the  other  hand,  the  customer,  not 
understanding  the  reasons  for  certain  acts  on  the  part  of 
the  broker,  decides  without  due  consideration,  that  he  is 
being  taken  advantage  of.  The  various  chapters  in  this 
booklet  cover  all  the  recognized  subjects  of  controversy. 

In  addition,  the  addenda  contains  the  rules  for  transfer 
and  delivery,  which  in  the  past  have  been  very  acceptable 
to  the  managers  of  branch  offices  and  correspondents. 

All  the  information  given  has  appeared  in  The  Maga- 
zine of  Wall  Street  at  various  times.  That  which  was  in 
some  of  the  older  numbers  has  been  brought  up  to  date  to 
apply  to  present  conditions  in  the  business. 

It  is  especially  valuable  for  the  investor  or  the  trader, 
as  it  is  the  only  compilation  which  goes  into  the  subject 
from  the  viewpoint  of  both  client  and  broker. 

In  the  case  where  the  illustrations  do  not  conform  to 
the  particular  method  of  the  broker,  the  basic  principles  are 
set  forth,  so  as  to  be  applicable  to  every  situation. 


Articles  and  arrangement  by 

ROBERT  L.  SMITLEY. 


Regulations  covering  transfer  of  stocks  and  bonds  by 
permission  of  James  L.  Mayberry. 


CONTENTS 


How  to  Choose  Your  Broker 1 

Why   Securities   Should  Be  Transferred 3 

What  is  a  Fair  Interest  Rate  and  Why? 7 

The  Eight  Way  to  Give  an  Order 10 

How  to  Read  a  Broker's  Statement 14 

How  Margin  is   Computed 18 

Delayed  Deliveries — The  Stock  Power 22 

Various  Reasons  for  Complaints 26 

The  Authorization  and  Proxy 31 

Lost  Certificates — The  Safe  Deposit 35 

The  Course  of  An  Order 39 

Transfer  Taxes— How  to  Check  Them. 44 

Rules  for  Transfer  of  Stocks  and  Bonds 48 

New  Jersey  Regulations 51 

Corporation    Requirements 52 

New  York  Stock  Exchange  Rules 53 

Notarial  Acknowledgment  Forms 56 


COPYRIGHTED    1917 

BY 
THE  TICKER  PUBLISHING  Co.,  INC. 


Choosing  Your  Broker 


THE  majority  of  customers  of  brokerage  firms  know  very  little  about 
the  firms  with  which  they  do  business.     In  most  cases,  the  customer 
becomes  a  client  on  account  of  his  personal  acquaintance  with  the 
manager  or  one  of  the  partners ;  because  he  is  attracted  by  an  advertisement 
or  market  letter;  because  the  firm  has  a  reputation  for  making  money  for 
its  customers ;  or  the  association  might  come  about  through  banking  con- 
nections. It  makes  but  little  difference  how  the  customer  happened  to  become 
a  client,  he  should  know  all  there  is  to  know  about  the  firm  with  which  he  is 
dealing. 

Safety  First 

No  sane  man  deposits  his  money  in  a  bank  until  he  has  made  a  study  of 
the  officers  and  directors  of  the  bank,  noted  its  latest  statements,  and  assured 
himself  that  the  bank  is  a  very  strong  institution.  And  it  is  a  peculiar  fact 
that  very  few  if  any,  sane  men  ever  take  the  precaution  to  investigate  their 
brokers. 

It  is  a  known  fact  that  the  firms  with  large  capital,  whose  business  is 
very  large  know  about  the  "pools"  and  the  incidentals  of  some  particular 
stock  before  the  movement  up  or  down  is  apt  to  begin.  Many  of  these 
large  firms  apportion  a  participation  for  each  of  their  customers  in  these 
"good  things"  and  it  is  the  desire  of  every  trader  to  belong  to  such  a 
clientele.  This  particular  service  of  the  larger  firm  may  offset  the  desire 
for  the  more  personal  service  of  the  smaller  firm. 

The  Matter  of  Personality 

Personality  often  enters  into  the  relation  of  broker  and  client  to  an 
undesirable  degree  so  far  as  the  interests  of  the  client  are  concerned.  When 
a  client  is  placing  his  money  for  banking,  speculation  or  investment,  it  is 
the  duty  of  such  client  to  make  an  impersonal  investigation.  He  may  find 
that  the  most  unattractive  personality  offers  the  safest  service  and  the  best 
information.  Neither  incorporation  of  the  exchanges,  or  any  governmental 
control  will  help  the  client  in  solving  this  problem.  He  must  do  it  for  him- 
self. The  old  rule,  "Let  the  buyer  beware,"  is  as  important  in  the  selection 
of  a  broker  as  in  any  other  form  of  business. 

Suggestions  to  Follow 

The  following  are  a  few  general  suggestions  for  the  client  to  follow  in 
the  investigations  as  to  where  it  is  best  to  open  an  account : 

1.  Decide,  according  to  the  nature  of  the  proposed  business,  whether 
you  desire  personal  attention  with  a  small  firm,  or  the  advantages  of  a  large 
firm. 

2.  If  the  intention  is  to  carry  large  debit  balances  in  the  account,  the 
large  firm  is  preferable. 

3.  An  investigation  of  the  personality  of  the  members  of  the  firm  is 
very  necessary.     Are  they  big  spenders,  or  noted  as  heavy  speculators,  or 
are  they  conservative  with  good  moral  reputations  and  accredited  with  the 
ability  of  discerning  financial  acumen? 

1 

:-^ 


4."  HoW'do'tliey  treat  their  employees?    Are  they  well  paid  and  do  they 
work  under  good  physical  conditions  ? 

5.  What  kind  of  a  man  is  the  customer's  manager  ? 

6.  Is  the  firm   rated  with  the  financial  agencies,   such  as    Dun's  or 
Bradstreet's  and  what  is  the  general  opinion  of  its  resources  among  its 
competitors?    What  do  the  partners  tell  you  about  the  approximate  capital 
which  is  invested  in  the  business  ? 

7.  What  are  the  facilities  for  keeping  the  customers  well  informed? 
Does  the  firm  keep  up  to  date  in  its  subscriptions  with  the  financial  mag- 
azines, the  news  bureaus,  the  statistical  agencies,  and  general  business  con- 
ditions?    Will   the   customer   be   informed    regularly   regarding   dividend 
periods,  assessments  reorganizations  and  other  important  data,  or  will  the 
customer  be  permitted  to  wander  through  the  financial  mazes  alone? 

8.  Is  the  detail  of  the  office  so  well  organized  that  the  client  may  get 
information  about  his  account  at  once  and  with  accuracy  ? 

9.  Has  the  firm  such  connections  as  will  enable  it  to  at  once  locate 
the  best  markets,  get  the  earliest  data  regarding  new  market  movements, 
and  secure  participation  in  new  and  good  investments  and  speculations? 

10.  Will  the  firm  permit  trading  with  inadequate  margin — the  greatest 
of  all  financial  sins — and  will  the  rules  ever  permit  an  account  to  fall  below 
a  ten  per  cent,  basis  ? 

11.  Does  the  firm  enjoy  easy  access  to  all  good  markets  for  the  pur- 
chase or  sale  of  securities,  or  does  it  have  to  charge  an  extra  commission 
to  effect  a  proper  execution  of  orders  ? 

12.  Is  the  "Floor  Member"  efficient,  always  at  his  post,  reporting  your 
transactions  at  once,  or  will  you  suffer  delay?    Does  the  ticker,  or  official 
report  of  transactions,  correspond  with  the  reports  of  your  broker? 

13.  When  you  have  stocks  or  bonds  paid  for,  does  your  broker  put 
them  in  an  envelope  marked  as  your  personal  property  until  such  a  time  as 
you  contract  a  debit  account  with  him,  or  does  he   use  what  you  own 
"outright"  to  carry  on  his  business  ? 

14.  What  is  the  character  and  standing  of  the  other  customers  whom 
you  may  happen  to  meet  ?    Are  they  investors,  speculators,  or  chance  takers  ? 

Ask  the  above  questions,  and  more  of  a  like  nature,  if  you  desire,  but 
always  remember  the  old  motto,  "Caveat  Emptor." 


Transfer  of  Securities 

The  old  saying  that  "Possession  is  nine  points  of  the  law,"  was  and  is 
never  more  applicable  than  in  the  case  of  owners  of  stocks  and  bonds. 
There  are  few,  however,  who  realize  just  what  "possession"  means  in  this 
case.  The  fact  that  one  may  have  the  actual  securities  in  his  safe  deposit 
vault  or  have  his  broker's  account  show  him  to  own  such  securities,  is  not 
nearly  so  determinate  a  meaning  of  the  word  as  when  the  securities  are 
actually  registered  in  his  name  and  such  registry  appears  upon  the  books  of 
the  company. 

Whenever  securities  are  really  owned,  they  should,  without  exception, 
be  transferred  on  the  books  of  the  company  and  registered  on  their  face 
in  the  name  of  the  owner. 

If  a  controversy  should  occur  between  broker  and  client,  the  broker 
has  the  burden  of  proof  on  his  shoulders  in  making  any  claim;  for  the 
company  recognizes  as  owner  only  the  name  on  its  books,  corresponding  to 
the  number  on  the  certificate.  If  the  owner,  neglects  to  hay?  fofL  St0fk 
transferred  to  his  own  name  the  legal  burden  of  proof  rests  with  him. 
It  is  universally  recognized  that  the  defendant  in  any  action,  whether  of  a 
legal  or  merely  arbitrary  nature,  has  the  advantage  of  the  aggressor.  The 
registration  of  securities,  therefore,  is  a  distinct  insurance  in  favor  of  the 
owner,  and  it  does  not  cost  him  one  cent. 

Penalty  of  Non-Transference 

The  brokerage  clerk  will  tell  any  stock  owner  that  about  the  most 
difficult  feature  of  his  work  is  to  collect  dividends  for  customers  who  have 
refused  or  neglected  to  have  the  certificates  transferred.  An  instance 
recently  occurred  in  the  case  of  a  holder  of  Nipissing  Mines  stock.  A 
customer  held  two  thousand  shares  and  received  it  from  his  broker  just 
before  the  dividend  paid  previous  to  that  declared  as  of  December  31,  1915. 
The  certificates  were  in  forty  or  more  different  names,  all  unknown  to  the 
present  holder.  The  company  paid  the  dividend  to  its  registered  holder,  not 
recognizing  the  real  owner,  because  the  latter  had  not  transferred  the  stock. 
The  owner  realized  his  misfortune  too  late,  for  the  company  will  not  collect 
the  dividends  for  him.  The  broker  succeeded  in  collecting  all  except  for 
-  two  hundred  and  twenty  shares.  The  owner  of  two  hundred  shares  had 
disappeared  in  Alaska  and  the  twenty  share  man  could  not  be  found  at  any 
registered  address. 

It  should  not  be  necessary  to  point  out  the  moral  in  the  above  case. 
To  make  matters  worse,  the  broker  always  charges  a  commission  of  one 
per  cent,  of  the  dividend  when  he  does  collect  for  the  client.  Suppose  the 
stock  had  been  American  Tobacco,  which  pays  5  per  cent,  quarterly.  The 
loss  to  the  owner  would  have  been  in  the  nature  of  a  disaster. 

Chances  In  Not  Transferring 

The  chances  in  not  transferring  non-dividend  stocks — that  is  the 
chances  for  loss — are  not  so  great ;  nor  do  they  come  often,  but  when  they 
do  come  they  are  serious.  An  example  is  the  case  of  the  Wabash  stocks, 
before  the  recent  re-organization.  Let  it  be  supposed  that  Brown  owned 
500  Wabash  common.  He  knew  that  the  stock  did  not  pay  a  dividend  and 
never  would,  so  he  never  bothered  to  have  it  transferred  to  his  name.  When 


Wabash  went  into  the  receiver  class,  Brown  was  in  British  Columbia,  or 
very  ill  in  a  hospital.  The  company  sent  out  announcements  and  the  receiver 
sent  out  his  plan  for  re-organization  to  the  registered  stockholders  of  the 
500  shares  but  nary  a  word  did  Brown  see.  In  consequence  he  did  not 
pay  his  assessments  or  go  into  the  new  company  and  his  stock  became 
worthless.  (It  so  happened  that  in  the  Wabash  case  it  was  cheaper  for  the 
owner  to  allow  his  holdings  to  pass  as  worthless  and  buy  the  "when  issued" 
stock),  but  this  was  not  the  case  in  the  Missouri  Pacific  situation  or  many 
others.  There  are  some  non-dividend  paying  stocks  which  combine  with 
other  concerns  and  issue  Tights.  Unless  the  owner  is  accustomed  to  scan 
all  newspaper  advertisements  and  to  frequent  brokerage  offices,  he  stands  a 
chance  of  missing  a  valuable  document  from  the  company,  unless  the  stock 
is  in  his  name.  Recent  instances  of  this  nature  are  the  Driggs  Seabury- 
Savage  Arms  combine  and  the  United  Fruit  Co.  rights.  How  many  owners 
of  Braden  Copper,  who  have  neglected  to  transfer  the  stock,  could  tell  just 
how  much  Kennecott  or  cash  they  were  entitled  to  ?  How  many  holders  of 
Guggenheim  stock  could  tell  how  much  Kennecott,  cash,  Smelters,  Ray  and 
Chino  they  should  get,  or  how  much  cash  was  left  with  the  company  rep- 
resenting equity  in  their  stock?  The  importance  of  registering  every  share 
of  stock  owned  in  the  owner's  name  cannot  be  emphasized  too  strongly. 

Sanitary  Considerations 

Before  leaving  this  phase  of  the  subject,  there  is  one  other  element 
which  should  induce  every  owner  to  register  stock  in  his  name.  It  is  that 
of  cleanliness  and  newness.  A  clean,  new  certificate,  without  powers-of- 
attorney  stamped  all  over  its  back,  is  a  much  better  possession  than  a  dirty 
crumpled,  indistinct  piece  of  parchment,  on  which  the  reading  is  recognized 
with  difficulty.  This  feature  is  an  added  phase  of  the  insurance. 

In  Case  of  Death 

The  owner  must  desire  to  protect  his  heirs  in  case  of  death.  Not  long 
ago  the  owner  of  100  shares  of  a  non-dividend  paying  stock  brought  it  to 
a  broker  for  sale.  He  had  held  the  stock  for  a  period  of  five  years,  and  as 
the  stock  did  not  pay  a  dividend  and  never  promised  to,  had  not  transferred 
it  to  his  own  name.  When  the  broker  made  delivery  of  the  stock  to  the 
purchaser,  the  latter  at  once  recognized  the  name  in  which  the  certificate 
stood  to  be  that  of  one  of  the  Wright  brothers  who  had  died  some  months 
previously. 

It  required  many  months  of  legal  red  tape  to  elapse  before  the  real 
owner  could  get  his  money  from  the  sale.  This  is  but  one  of  the  pitfalls 
for  the  careless  owner.  If  he  had  died  also,  in  the  above  case,  the  complica- 
tions would  have  been  serious.  Transfer  the  stock  to  your  own  name 
at  once  and  sign  it,  in  blank,  on  the  back,  if  you  wish  to  make  things  easy 
for  either  yourself  or  your  heirs. 

In  Case  of  Sale 

A  fourth  kind  of  insurance  by  having  stock  in  your  name  is  in  the 
matter  of  the  sale.  There  is  no  question  then  as  to  forgery,  and  no  doubt 
as  to  the  right  of  the  individual,  on  the  face  of  facts,  to  dispose  of  the 
security  in  any  way  that  he  sees  fit  to  do  so.  It  is  only  a  few  years  ago 
that  the  newspapers  were  full  of  the  accounts  of  the  forgery  of  some  La- 
clede  Gas  stock.  It  is  easy  to  imagine  an  innocent  purchaser  having  one 

4 


of  these  forged  certificates  delivered  to  him  on  a  purchase,  not  selling  it 
for  five  years,  and  then  having  the  purchaser  find  it  to  be  a  forgery.  If  he 
had  made  efforts  to  have  the  stock  transferred  at  once  to  his  own  name,  the 
loss,  if  any,  would  not  fall  upon  him ;  for  he  could  at  once  return  the  stock 
to  his  broker,  who  has  ten  days  in  which  to  return  a  "bad"  delivery  to  the 
original  seller,  before  he  can  be  forced  to  participate  in  any  loss  of  this 
nature. 

Lost  Certificates 

But  there  is  a  fifth  kind  of  insurance  and  really  a  very  important  one: 
lost  certificates.  How  much  easier  it  is  to  get  a  new  certificate  from  the 
company  if  it  is  lost  in  the  owner's  name,  than  if  lost  in  someone  else's 
name!  The  various  corporations  have  different  rules  in  the  matter  of  a 
lost  certificate,  but  in  a  general  way  they  are:  notification  to  the  transfer 
office  to  have  the  transfer  stopped ;  notification  to  the  various  exchanges  on 
which  the  stock  is  traded ;  advertisements  in  various  newspapers,  and  finally 
a  bond  covering  double  the  value  of  the  certificate. 

These  rules  are  easily  complied  with  in  case  the  stock  is  in  the  owner's 
name.  If  it  is  not,  proof  of  legal  ownership  must  be  rigidly  established,  the 
owner  must  notify  the  registered  owner,  even  if  he  be  in  the  trenches  in 
Flanders,  and  various  other  legal  steps  must  be  observed  in  addition  to 
the  ordinary  usages.  It  is  inconceivable  how  any  owner  of  stock  can  refrain 
from  having  the  securities  transferred  at  once  to  his  own  name,  after  realiz- 
ing the  chances  he  takes  in  not  doing  so. 

Matter  of  Expense 

The  large  odd  lot  brokerage  firms  have  forced  the  general  brokerage 
firms  to  accept  stock  sold  to  them  by  transfer.  This  uses  up  the  original 
sales  tickets  on  which  the  revenue  stamps  are  affixed.  Unless  the  customer 
permits  the  broker  to  give  his — the  customer's  name — to  the  seller,  the 
stock  will  be  delivered  to  the  broker  in  the  broker's  name.  If  at  a  later 
date  the  customer  instructs  his  broker  to  transfer  the  stock  to  his  own  name 
from  that  of  the  broker's,  additional  revenue  stamps  are  required. 

The  stock  exchange  does  not  permit  the  broker  to  pay  for  these  addi- 
tional stamps,  so  that  a  second  charge  must  fall  upon  the  customer.  It  is 
therefore  advisable  for  the  customer,  if  he  intends  to  pay  for  the  stock,  to 
have  it  transferred  to  his  own  name  immediately  upon  information  of  the 
purchase  by  his  broker.  This  is  a  very  important  feature  of  the  brokerage 
work  in  Wall  Street  today  but  very  few  customers  take  advantage  of  the 
situation  and  delay  in  instructing  the  broker  to  use  their  names.  If  all  such 
cash  customers  lived  up  to  their  duty,  which  duty  is  to  their  own  advantage, 
the  broker  and  customer  would  be  better  satisfied.  This  act  upon  the  part 
of  the  customer  also  insures  him  against  the  so-called  "bucketing"  of  his 
orders  in  a  questionable  broker's  office,  and  insures  him  against  any  loss 
in  case  of  the  failure  of  the  firm  with  which  he  is  dealing. 

The  situation  in  bonds  is  somewhat  distinct  from  that  of  stocks,  because 
there  is  always  a  better  market  for  bearer,  coupon  bonds  than  for  registered 
bonds.  But  there  is  also  a  way  for  protection  in  bonds  in  most  cases. 
Almost  all  issues  of  bonds  provide  for  the  registering  of  the  principal  only. 
The  broker  can  take  any  ordinary  coupon,  bearer  bond  purchased  and 
have  the  principal  of  the  bond  registered.  The  coupons  remain  as  they 


were,  bearer  coupons.  The  owner  may  then  fill  out  a  separate  bond  power 
to  cover  this  particular  bond,  and  before  its  sale  have  the  bond  re-transferred 
to  "Bearer,"  to  make  it  a  bearer  bond  for  delivery.  Bearer  bonds  are,  by 
far,  more  negotiable  than  stock  certificates. 

There  is,  therefore,  more  reason  why  protection  should  be  sought  in 
this  class  of  investment  than  in  other  forms  of  securities.  Economically,  a 
bond  is  a  negotiable  instrument,  while  a  stock  is  not,  but  the  endorsement 
of  the  stock  in  blank  has  made  the  stock  to  all  intents  and  purposes  a 
negotiable  instrument  in  Wall  Street  procedure.  But  in  purely  legal  pro- 
cedure, the  bond  is  easier  to  transfer  as  property.  There  are  no  taxes  to 
pay  in  either  transferring  the  principal  of  the  bond  to  a  name  or  back  to 
bearer,  other  than  the  inheritance  tax  in  case  of  the  owner's  death.  It  is 
therefore  advisable  for  the  investor  to  insure  himself  against  forgery,  theft 
and  loss  by  registering  the  principal  of  his  bonds. 

Read  Your  Certificates 

How  many  owners,  on  receiving  a  certificate  of  stock,  read  all  that  is 
printed  thereon?  Very  few.  This  should  never  be  neglected.  During  the 
recent  rise  in  the  International  Mercantile  Marine  stocks,  innumerable 
people  sold  what  they  thought  was  stock  only  to  find  out  on  presentation 
of  the  certificate  to  their  brokers  that  it  was  Voting  Trust  Certificates  which 
they  owned.  Delays  therefore  ensued,  while  the  broker  sent  the  stock  to  the 
Hudson  Trust  Co.  at  Hoboken,  N.  J.,  for  exchange  and  the  customer  was 
compelled  to  pay  a  double  Federal  tax  before  his  sale  could  be  made. 

Is  your  purchase  callable  at  a  price  far  below  that  at  which  it  was  pur- 
chased, as  in  the  case  of  the  Supulpa  Oil  Pfd.  shares  formerly  traded  in  on 
the  New  York  curb?  Is  it  a  voting  trust  certificate?  Is  it  only  a  tem- 
porary certificate  exchangeable  for  definitive  certificates  at  a  later  date? 
Was  it  purchased  with  a  syndicate  and  is  it  "Withdrawn  from  Sale"  or  not  ? 
Many  an  investor  thinks  he  has  something  and  finds  he  has  nothing.  There 
are  today  in  existence  Montana  Power  Co.  installment  stocks  which  have  no 
value  until  certain  contracts  materialize,  and  these  may  never  materialize. 
It  is  possible  to  deliver  one  of  these  certificates  to  a  purchaser  who  thinks 
he  has  bought  regular  common  stock.  Unless  he  reads  very  carefully,  he 
may  find  himself  saddled  with  a  loss.  Read  and  understand  everything 
printed  on  a  certificate  of  stock  and  read  every  word  of  the  body  of  the  bond. 

Some  Rules  to  Follow 

Valuable  suggestions  for  the  investor  are: 
^1)   Have  the  stock  registered  in  your  name  at  the  time  of  purchase. 

(2)  Read  the  body  of  the  certificate  with  care  and  understanding. 

(3)  Be  sure  and  ask  for  and  send  in  a  dividend  order  to  the  transfer, 
office. 

(4)  Register  the  principal  of  your  bonds  whenever  permissible. 

*f5)  Collect  all  official  data  sent  out  by  the  company  and  put  it  away 
with  your  security,  after  you  have  read  and  digested  it. 

(6)  Understand  the  purpose  and  value  of  your  rights  when  offered  by 
the  company. 

The  above  rules  carefully  followed,  will  give  to  you  all  to  which  you  are 
entitled  and  are  an  insurance,  without  expense,  against  theft,  loss  and 
forgery. 


Loaning  Rates  on  Securities 

UNLESS  one  has  been  actively  engaged  in  all  phases  of  the  brokerage 
business,  the  question  of  interest  rates  is  usually  an  enigma.  Fur- 
thermore, it  is  difficult  to  explain  in  just  ordinary  words  because  so 
many  technical  features  enter  into  the  subject.  The  inquiry  department  of 
The  Magazine  of  Wall  Street  has  had  hundreds  of  inquiries  on  interest 
matters  and  this  article,  in  a  measure,  is  a  general  reply  to  all  these  in- 
quiries. 

The  subject  had  best  be  divided  into  three  captions  and  each  one  dis- 
cussed separately :  Call  and  Time  rates,  Stock  rates,  and  the  Brokers'  rates. 

Call  Money 

The  so-called  renewal  rate  for  call  money  which  is  published  in  the 
daily  newspapers,  has  really  very  little  to  do  with  the  actual  situation  ex- 
cept to  determine  a  sort  of  "clearing  rate"  for  the  day.  Money  may  open, 
be  lent,  on  the  Stock  Exchange  at  about  1 1 :30  a.  m.  at  2  per  cent,  and 
possibly  a  million  dollars  may  pass  from  the  bank  to  broker  at  this  rate. 
The  renewal  rate  is  then  established  and  communicated  to  all  those  in- 
terested. The  broker  may  be  borrowing  from  ten  to  fifty  million  dollars 
from  many  financial  institutions,  and  he  at  once  tries  to  renew  his  call  loans 
at  2  per  cent.  If  these  loans  had  been  standing  at  3  per  cent,  the  day  pre- 
vious, it  is  barely  possible  that  one  million  out  of  ten  will  reduce  to  the 
renewal.  The  rest  continue  to  stand  at  above  3  per  cent.,  or  3  per  cent.,  or 
may  be  2^2  per  cent.  But,  if  the  broker's  customers  are  carrying  many 
industrial  stocks,  he  will  have  to  make  special  loans,  and  all  industrial  loans 
average  from  y2  per  cent,  to  1  per  cent,  above  the  renewal.  The  banks 
all  know  that  it  would  be  impossible  for  the  broker  to  pay  all  loans  which 
do  not  renew  at  the  renewal  rate,  and  even  if  the  broker  tried  to  pay  them, 
the  sudden  demand  for  money  would  force  the  rate  up  higher  than  before. 
In  addition  to  this  feature,  many  financial  institutions  do  not  loan  above 
6  per  cent.,  notably  the  National  City  bank.  After  a  period  of  high  money, 
these  banks  do  not  reduce  their  interest  so  rapidly,  although  they  may  put 
out  new  money  at  the  prevailing  rate. 

The  Average 

A  typical  day's  average  for  the  broker  on  the  first  or  second  day  of  2 
per  cent,  money  is  as  follows,  basis  ten  million : 

$500,000  odd  lots  (less  than  100  shares  for  each  collateral)  at  $y2  per  cent. 
$1,000,000  special  loan,  possibly  on  active  curb  stocks  at  3  per  cent. 
$3,000,000  industrial  money  at  3  per  cent. 
$1,000,000  industrial  money  at  2%  per  cent. 
$2,000,000  regular  money  not  marked  down,  at  2^  per  cent. 
$3,500,000  regular  money  at  renewal  at  2  per  cent. 

The  average,  therefore,  is  2.825  per  cent.,  which  is  quite  a  difference 
from  the  renewal  rate  quoted  in  the  newspapers. 

All  brokers  find  it  to  their  advantage  to  protect  themselves  and  their 
customers  by  taking  about  T/4  to  1-3  of  their  money  on  time  at  a  specified 
rate.  This  prevents  sudden  calling  of  too  many  loans  and  is  a  kind  of 
insurance  for  the  general  average  if  money  should  be  very  high  on  the 


call.  If  the  broker  at  the  present  time,  averages  his  $3,000,000  time  money, 
part  of  which  will  no  doubt  be  "industrial  or  special"  at  about  3^4,  he  will 
be  doing  very  well.  The  reader's  attention  is  called  to  the  fact  that  a 
regular  loan  usually  consists  of  60  per  cent,  rails,  full  100  share  lots  and  40 
per  cent,  good  industrials,  full  100  share  lots. 

The  above  time  money  may  range  all  the  way  from  5  per  cent,  down 
to  3  per  cent,  and  the  broker's  average  now,  in  connection  with  call  money 
would  be  a  combination  of  the  two  elements,  or  3.04  per  cent.,  on  a  day 
when  money  renewed  at  2  per  cent. 

But  there  is  yet  another  element.  Many  customers  deal  in  curb  or 
outside  securities  which  the  banks  will  never  admit  to  loans.  It  is  therefore 
imperative  that  the  broker  loan  the  customer  the  money.  The  broker  never 
values  his  money  less  than  6  per  cent.,  and  if  his  capital  amounts  to 
$2,000,000,  this  third  element  must  be  averaged  in  with  the  former.  On 
the  above  basis,  the  real  average  for  the  day  would  be  3.433  per  cent.,  and 
money  renewed  on  the  Stock  Exchange  at  2  per  cent. 

The  Bank's  Position 

There  is  a  clique  of  banks  furnishing  funds  to  brokers  whose  loan 
clerks  confer  daily  to  establish  their  own  renewal,  notwithstanding  what  the 
Exchange  renewals  may  be.  There  are  other  banks  which  never  loan 
below  2^2  per  cent.,  and  yet  others  whose  minimum  is  3  per  cent.  For 
the  large  borrower,  it  is  necessary  to  deal  with  these  high  priced  banks, 
as  it  is  only  possible  for  a  bank  to  loan  one  firm  a  specified  amount  based 
on  its  capital.  In  all,  there  are  only  about  seventy-five  financial  institutions 
in  New  York  loaning  call  money,  but  when  the  call  rate  reaches  4  per  cent, 
and  5  per  cent,  out  of  town  banks  like  the  Continental  and  Commercial  of 
Chicago,  the  Union  Trust  Co.  of  Pittsburgh  and  hundreds  of  others  enter 
the  field,  either  direct  or  through  New  York  correspondents. 

Stock  Loans 

In  accordance  with  the  rules  prevalent  in  New  York,  deliveries  of  sales 
of  stock  must  be  made  before  2:15  p.  m.  the  following  day,  except  in  the 
case  of  Friday  sale,  when  delivery  is  made  on  the  following  Monday.  If 
the  sale  is  a  "short"  one,  if  the  stock  is  coming  from  out  of  town  or  from 
abroad,  or  for  any  other  reason  which  prevents  actual  delivery  of  the  cer- 
tificate sold,  the  broker  must  borrow  it.  The  business  of  loaning  stocks  is 
kept  up  on  the  floor  of  the  exchange  from  9 :45  a.  m.  to  3  :30  p.  m.  This 
is  sometimes  the  salvation  of  a  firm  with  inadequate  capital,  or  one  doing 
more  business  than  its  capital  should  permit.  The  lender  gets  market  value 
for  the  stock  lent  and  it  is  kept  at  market  value  during  the  period  of  the 
loan.  The  lender  of  the  stock  pays  interest  on  the  money  he  receives, 
except  in  certain  exceptional  cases,  and  he  does  not  have  to  put  up  20  per 
cent,  margin  from  his  capital. 

If  the  stock  lent  is  an  active  one  and  there  is  plenty  about  the  "street," 
the  lender  will  pay  the  renewal  rate  of  call  money  for  the  day  on  the  total 
sum  he  has  received  from  the  borrower.  If  the  supply  of  the  stock  is  very 
low,  the  rate  decreases  in  a  ratio  governed  by  supply  and  demand.  For  a 
very  inactive  stock  like  National  Biscuit  or  Sears  Roebuck,  the  rate  would 
probably  be  "flat."  The  lender  of  the  stock  gets  the  use  of  the  money 
without  paying  any  interest.  When  a  real  large  short  interest,  or  an 
artificial  one,  appears  in  a  stock  it  very  often  loans  at  a  premium.  In  other 


words,  the  lender  not  only  gets  the  use  of  his  money  free,  but  gets  a  bonus 
for  lending  his  stock.  The  premium  usually  runs  by  the  day  and  is  based 
on  the  par  of  funds.  The  usual  premiums  run  from  l/$  per  cent.,  or  $25 
per  day  per  100  shares  to  1-256%  or  a  little  over  thirty-nine  cents  per  day 
per  100  shares.  Sundays  are  never  counted  in  computing  premiums  and 
it  is  the  custom  now  to  omit  Saturdays  from  a  charge  day. 

The  loaning  rate  of  stocks,  like  the  renewal  rate  of  call  money  does 
not  always  represent  the  true  condition  of  the  short  interest  in  a  stock.  It 
is  very  likely  that  the  recent  premiums  on  New  Haven  and  Industrial 
Alcohol  did  represent  a  large  short  interest,  for  the  floating  supply  of  these 
two  stocks  were  not  large  at  times.  The  writer  recalls  a  time  when  certain 
large  speculators  were  carrying  thousands  of  shares  of  Amalgamated 
Copper,  but  even  after  selling  these  shares  they  were  not  delivered  and  the 
brokers  openly  borrowed  fifty  thousand  shares  at  one  time.  Many  firms  do 
not  like  to  show  their  actual  position  in  the  market  and  arrangements  to 
borrow  are  made  privately.  Not  many  weeks  ago  a  certain  Stock  Exchange 
firm  borrowed  thirty  thousand  shares  of  Steel  common  by  arrangement  over 
the  telephone  wire. 

Risks 

There  are  many  risks  for  the  firm  lending  stocks.  A  sudden  rise  in 
the  market  may  cause  a  failure  to  the  borrower  and  the  stocks  would  have 
to  be  bought  in  "under  the  rule"  at  a  much  higher  price  and  therefore  a 
loss.  But  several  large  firms  make  it  a  practice  to  loan  stocks  only  when  the 
rate  is  low,  flat  or  at  a  premium.  One  large  firm  saves  between  fourteen 
and  fifteen  thousand  dollars  each  year  by  taking  advantage  of  this  situation. 

The  Customer's  Status 

The  general  custom  is  to  give  the  owner  of  stock,  which  is  loaned  at  a 
premium,  the  full  premium.  The  firm  does  not  get,  or  should  not  get  this 
advantage.  In  the  case  of  short  interest  accruing  from  stock  borrowed  for 
a  short  account,  the  customer  rarely  gets  any  profit  from  this,  unless  the 
short  sales  are  very  large  when  he  may  demand  that  his  broker  divide  the 
short  interest  on  a  basis  of  3^  or  1-3  to  the  customer.  Very  few  customers, 
however,  take  advantage  of  their  opportunities  to  make  money  through 
short  interest. 

The  margin  account  of  a  customer  is  usually  charged  from  Y^%  to 
4%  above  the  average  cost  of  money  to  the  firm.  In  addition  to  this,  few 
customers  realize  that  they  are  paying  compound  interest  on  a  monthly 
basis.  The  interest  charge  on  an  account  is  determined  by  these  elements : 
the  average  cost  to  the  firm  for  the  month,  the  added  increment  to  pay 
for  handling  the  account,  and  the  class  of  stocks  carried.  If  the  customer 
is  carrying  an  account  made  up  of  100  share  lots,  half  active  rails  and  half 
active  industrials,  he  will  be  charged  the  minimum  rate  by  his  broker;  if  he 
is  carrying  various  odd  lots,  he  may  pay  J4  to  1%  more ;  if  it  is  all  industrial, 
the  rate  will  probably  be  */>%  more  than  the  minimum,  but  if  the  account 
consists  of  inactive  issues  or  unborrowable  curb  issues,  the  minimum  will  be 
6%,  and  if  money  has  ruled  high  for  the  month,  may  be  more  than 
6%.  It  costs  much  money  and  there  is  considerable  risk  in  margin  accounts. 
It  is  only  fair  that  the  broker  make  enough  from  this  phase  of  his  business 
to  cover  these  costs. 


Elemental  Principles  of  Buying  and  Selling 
Securities 

THE  MAGAZINE  OF  WALL  STREET  receives  hundreds  of  inquiries  bear- 
ing on  the  relationship,  in  a  business  way,  of  client  and  broker.  These 
inquiries  are  very  seldom  so  serious  as  to  require  legal  interference,  and 
almost  all  of  them  bear  upon  some  misunderstanding  on  the  part  of  the 
client  with  the  ordinary  customs  of  brokerage.  This  chapter  purposes  to 
deal  with  some  of  the  very  elementary  rules  and  regulations  of  the  brokerage 
business.  They  may  be  well  known  to  the  consistent  trader  or  investor, 
but  the  casual  investor  or  the  beginner  should  observe  them  carefully. 

The  Order 

When  the  client  has  made  a  careful  study  of  the  firm  with  which  he 
purposes  to  trade,  has  investigated  its  responsibility,  appreciated  its  repu- 
tation for  good  service,  and  is  satisfied  with  the  integrity  of  the  partners, 
he  desires  to  give  an  order  for  the  purchase  or  sale  of  securities.  If  the 
order  is  given  over  the  telephone  the  client  must  first  be  certain  that  the 
recipient  of  the  order  is  a  responsible  person ;  that  is,  a  partner,  the  office 
manager,  one  of  the  customer's  managers,  or  the  accredited  order  clerk. 
It  is  well  to  be  certain  of  the  name  of  the  representative  of  the  firm  receiv- 
ing the  order  over  the  telephone  and  when  the  order  is  given  the  man  who 
receives  it  should  be  obliged  to  repeat  it  back,  after  writing  it  down,  so  as 
to  avoid  all  errors.  The  telephone  order  should  also  be  confirmed  by  letter 
from  the  customer.  If  the  order  is  given  at  the  office  of  the  broker  it  may 
be  verbally  given,  but  it  should  be  written  on  a  regular  order  form  and 
signed  by  the  customer.  Every  safeguard  possible  should  surround  the 
giving  of  an  order  and  when  the  order  is  filled  the  customer  must  make 
certain  that  he  receives  a  written  notice  within  a  very  reasonable  time. 

Safeguards 

\Vhen  the  customer  desires  to  change  the  limit  or  price  of  an  order 
already  placed  with  the  broker  it  is  very  necessary  not  to  forget  to  cancel 
the  original  order.  This  oversight  has  been  the  cause  of  large  losses ;  for 
the  broker,  especially  when  busy,  places  the  burden  of  correctness  of  orders 
on  the  customer.  In  an  active  office  so  many  hundreds  of  orders  are  placed 
every  day  that  the  order  department  becomes  mechanical,  much  as  a  type- 
setter of  manuscript. 

In  an  active  market,  when  the  ticker  is  far  behind  in  time,  the  customer 
may  be  surprised  to  find  his  market  order  filled  at  a  price  points  or  fractions 
of  points  some  distance  away  from  the  ticker  price  at  the  time  he  placed  the 
order.  If  he  is  in  the  broker's  office  at  the  time,  he  may  verify  the  purchase 
or  sale  price  by  following  the  ticker.  If  he  is  at  a  distance  from  the  office 
he  must  rely  upon  the  integrity  of  his  broker.  On  a  fairly  active  day  in 
stocks,  orders  placed  before  the  opening  of  the  market  should  be  given  not 
later  than  9:45  A.  M.,  because  the  confusion  on  the  Exchange  during  the 
last  fifteen  minutes  before  the  opening  is  so  great  that  a  late  order  may  be 
filled  some  minutes  after  the  opening  and  the  opening  price  lost.  In  this 
case  the  broker  cannot  be  held  responsible. 

10 


On  all  inactive  stocks,  the  client  should  ask  for  the  bid  and  offered 
price  before  placing  a  market  order,  also  if  the  order  is  for  an  "odd  lot," 
less  than  100  shares,  and  the  opening  of  the  stock  reads  on  the  tape  "5000 
Union  opened  from  140  to  137"  the  client  must  be  satisfied  with  any  fair 
average.  The  custom  is  for  the  odd  lot  brokers  to  make  an  opening  price 
for  odd  lots  arbitrarily  between  the  above  prices  and  all  clients  must  abide 
to  this  decision. 

Stop  Orders 

The  "stop  order"  has  caused  more  controversies  than  any  other  kind  of 
an  order  because  the  general  run  of  customers  do  not  understand  what  a 
stop  order  means.  Suppose  the  customer  owns  fifty  shares  of  U.  S.  Steel  at 
107  and  gives  his  order  to  the  broker  to  sell  this  fifty  shares  at  "104  stop." 
There  are  three  possibilities  for  the  fulfilling  of  this  order.  The  order  is 
not  good  until  Steel  sells  at  104.  As  soon  as  a  sale  is  made  at  this  price 
the  stop  order  becomes  effective.  If  other  brokers  are  bidding  104  for 
more  Steel,  the  customer  will  get  104  for  his  fifty  shares.  If  only  one 
order  was  desired  at  104  and  the  original  sale  was  made  on  this  one  bid, 
leaving  the  best  bid  at  103%,  the  customer  will  get  the  latter  price.  The 
stop  order  at  104  is  not  a  limited  order.  It  never  means  that  the  customer 
will  get  104  for  his  stock,  although  he  may  get  this  price.  It  means  that  as 
soon  as  a  sale  is  made  at  104  the  stop  order  automatically  becomes  a 
"market"  order  for  any  price.  If  the  customer  entered  this  order  Monday 
evening,  when  Steel  closed  at  105,  and  on  Tuesday  morning  Steel  opened  at 
102,  the  customer  would  receive  a  price  of  102  or  less  on  his  order  to  sell 
"stop"  at  104. 

If  the  customer  had  his  stop  order  in  to  sell  his  Steel  at  104,  and  the 
following  day  Steel  opened  10  points  lower,  or  at  94,  the  order,  automatically 
becoming  a  market  order,  would  be  filled  at  the  best  obtainable  price  near 
94  the  opening  price. 

The  customer  must  always  bear  in  mind  that  the  placing  of  a  stop  order 
is  not  a  guarantee  that  he  will  get  the  stop  price.  The  result  may  be  very 
much  lower,  but  the  stop  order  is  the  best  obtainable  insurance  for  the 
trader. 

Bond  Orders 

Orders  in  bonds  are  rarely  if  ever  given  at  the  market,  unless  the  issue 
to  be  purchased  or  sold  is  a  very  active  one.  It  is  always  safe  to  get  a  quo- 
tation on  bonds  before  giving  an  order.  On  the  Exchange  the  bond  dealers 
are  the  most  arbitrary  of  any  class  of  security  dealers  and  great  care  must 
be  used  in  this  department.  Almost  all  members  of  the  Exchanges  find  it 
best  to  give  their  orders  to  the  regular  bond  dealers  who  form  a  class  by 
themselves.  Whenever  possible,  ask  for  a  "firm"  bid  or  offer  which  means 
that  such  quotation  is  not  apt  to  be  withdrawn  at  once. 

Curb  Orders 

When  giving  orders  in  Curb  securities,  unless  the  customer  has  an 
accurate  knowledge  of  the  market,  it  is  much  safer  to  put  in  a  limited  order 
first  and  ask  for  a  quotation.  Sometimes  the  difference  between  the  bid  and 
offered  price  is  very  far  apart  and  there  is  no  way  to  check  up  the  purchase 
by  watching  the  ticker,  for  there  is  no  ticker.  Curb  orders  must  be  very 
carefully  given  and  practically  entire  reliance  must  be  placed  in  the  broker. 

11 


There  does  exist  a  so-called  official  list  of  Curb  sales,  but  it  is  not  accurate 
by  any  means  because  there  are  no  regular  reporters  such  as  the  Stock  Ex- 
change uses,  and  the  broker  may  report  his  sale  on  the  Curb  or  he  may  not. 

Official  Lists 

If  the  customer  gets  his  report  of  a  purchase  or  sale  at  a  price  which 
does  not  appear  on  the  ticker  reporting  such  sales  for  the  Exchange ;  if,  in 
addition,  the  newspapers  and  so-called  official  stock  exchange  list  does  not 
show  a  transaction  at  this  price  for  the  day,  the  customer  may  make  his 
broker  prove  such  a  transaction,  and  if  it  is  correctly  compared  with  the 
broker  at  the  other  side  of  the  transaction  it  must  be  placed  on  the  official 
lists  as  sent  out  by  the  Exchange.  If  the  official  lists  will  not  print  such  a 
transaction,  there  is  something  wrong  which  should  be  investigated  by  the 
customer  at  once,  even  to  taking  the  matter  up  with  the  broker  whose  name 
appears  upon  the  report  as  having  been  the  second  party  to  the  transaction, 
or  the  Secretary's  Department  of  the  New  York  Stock  Exchange. 

Unlisted  Orders 

The  most  dangerous  pitfall  for  the  customer  relative  to  orders  is  in  the 
inactive,  unlisted  stocks  or  bonds  traded  in  "over  the  counter,"  or  private 
sales  between  brokers.  Giving  a  market  order  in  this  class  of  security  is 
inviting  a  loss.  Brokers  of  this  nature  make  their  livelihood  by  trading  for 
their  own  account  and  not  as  agent,  so  everything  depends  upon  the  integrity 
of  the  broker.  In  every  transaction  of  this  nature  at  least  two  "unlisted" 
brokers  should  be  made  to  compete  on  a  quotation  and  the  quotation  should 
be  given  on  the  "firm"  basis.  In  untechnical  language,  the  broker  should 
be  asked  for  a  quotation  which  would  remain  constant  for  several  minutes 
for  the  purpose  of  comparison.  If  the  customer  is  dealing  through  a  regular 
commission  house  in  this  class  of  stock  or  bonds,  he  may  ask  the  firm  to 
give  him  the  name  of  the  "outside"  or  "unlisted"  broker  quoting  or  demand 
several  quotations. 

Kinds  of  Orders 

An  order  given  during  the  day,  unless  otherwise  specified,  means  that 
it  is  only  good  for  the  day  on  which  the  order  was  given.  If  the  customer 
sends  in  a  letter,  "Sell  100  Steel  at  105,"  the  broker  is  privileged  to  accept 
this  order  for  the  day  only.  The  customer  may  mean  the  order  to  be  good 
until  filled,  but  he  must  say  so  in  his  letter,  or  he  must  not  object  if  the  order 
is  cancelled  at  the  end  of  the  day. 

The  following  are  various  forms  of  orders : 

1.  The  simple  command  without  other  notation  means  good   for  the 
day  only. 

2.  An  order  accompanied  by  the  letters  G.  T.  W.  means  that  it  may  be 
kept  good  until  the  closing  of  the  market  on  the  Saturday  following  the  day 
the  order  was  given.     Good  This  Week. 

3.  An  order  marked  G.  T.  C.  means  that  it  is  good,  or  to  be  kept  alive 
until  countermanded.     Its  life  is  at  the  command  of  the  customer.     Good 
Till  Countermanded. 

The  G.  T.  C.  order  is  the  favorite  order  of  the  investor  and  its  perma- 
nent feature  until  filled,  makes  it  the  best  of  the  order  systems.  Customers 
should  always  specify  this  G.  T.  C.  when  giving  orders  so  as  not  to  confuse 
the  broker  with  a  day  order. 

12 


4.  Stop  orders  may  be  placed  under  any  of  the  above  three  forms. 

5.  Unless  otherwise  marked  any  of  the  above  four  forms  means  that 
the  customer,  when  the  transaction  is  completed,  expects  to  deliver  or  re- 
ceive the  stock  or  security  before  2:15  P.  M.  the  following  day,  except  in 
case  of  Friday  when  the  transaction  is  completed  on  Monday. 

6.  If  the  customer  desires  to  sell  a  security  which  he  will  not  be  able 
to  deliver  to  the  broker  for  two  or  three  days,  he  may  sell  "at  three  days"  or 
"seller  three,"  which  gives  him  the  privilege  of  waiting  that  time  or  making 
delivery  on  one  day's  notice  to  the  buyer. 

7.  Another  form  of  selling  or  buying  is  with  a  thirty-day  extension, 
which  follows  the  three-day  form  in  like  manner. 

8.  Estates  selling  securities  which  need  legal  papers,  or  Western  cus- 
tomers, or  foreign  customers,  selling  inactive  stocks  or  bonds  which  cannot 
easily  be  borrowed,  often  sell  "delayed  delivery"  which  is  in  reality  a  kind 
of  gentlemen's  agreement  between  the  brokers  to  wait  any  reasonable  length 
of  time  for  the  completion  of  the  transaction. 

General  Suggestions 

In  cases  where  the  purchase  or  sale  of  "when  as  and  if  issued"  securi- 
ties are  involved,  it  is  well  to  consult  the  broker  before  placing  the  order  to 
find  out  what  kind  of  contracts  are  necessary.  The  same  applies  to  reorgani- 
zation securities  where  the  certificates  are  not  issued. 

Do  not  lose  your  temper  when  you  believe  that  you  have  been  unjustly 
treated ;  for  there  may  be  a  perfectly  good  reason.  If  in  serious  doubt,  con- 
sult authorities,  such  as  the  Inquiry  Department  of  the  MAGAZINE  OF  WALL 
STREET,  and  present  both  sides  of  the  case  and  all  the  facts.  Only  as  a  last 
resort  consult  the  legal  features  of  a  difference.  Oftentimes  a  compromise 
can  be  effected  and  it  costs  less.  Be  absolutely  clear  and  in  giving  a  bond 
order,  always  describe  the  bond  in  full,  giving  the  "due  date"  of  the  bond, 
and  interest  periods.  Be  certain  to  designate  "common,"  "preferred"  or 
"first  preferred,"  etc.,  when  dealing  in  stocks,  and  if  the  stock  is  in  pro- 
cess of  reorganization,  where  a  committee  issues  certificate  of  deposit,  desig- 
nate that  you  desire  to  deal  in  certificates  and  not  stock. 


13 


The  Broker's  Statement— How  It  Should 
Be  Checked 

THE  writer  is  not  guessing  when  he  states  that  90  per  cent,  of  the  men 
and  women  who  have  speculative  accounts  do  not  know  how  to  prove 
their  monthly  statements  from  the  broker,  or,  if  they  do  know  how,  they 
are  careless  in  checking  the  statement.  Not  one  of  these  careless  customers 
would  permit  a  tradesmen's  bill  to  be  paid  without  going  over  it  carefully, 
but  the  same  element  of  risk  on  account  of  errors  enters  into  the  broker's 
statement  as  well  as  the  tradesmen's.  Nearly  all  accounting  in  some  one  or 
more  phases  is  subject  to  possible  errors  and  all  brokerage  firms  use  the  form 
of  "Errors  and  Omissions  Excepted"  when  rendering  a  statement. 

The  Simple  Form 

There  is  no  universal  form  of  statement  rendered  by  brokers,  but  all 
the  forms  used  can  easily  be  reduced  to  the  fundamental  elements:  Cash 
credits  or  debits,  Purchases  and  Sales,  and  Interest.  The  form  shown  with 
this  article  combines  all  the  three  fundamentals.  John  Jones  deposited 
$1,000  and  also  received  a  dividend  from  his  Steel  com. :  these  are  the  cash 
transactions.  He  purchased  Steel  and  Anaconda  and  sold  part  of  his  Steel 
and  Anaconda:  these  are  the  purchase  and  sale  items.  He  was  charged 
interest,  which  completes  the  fundamental  possibilities  of  a  Long  Account. 
Put  yourself  in  Jones'  place  and  check  up  the  statement. 

The  first  item,  a  credit  of  $1,000,  was  put  up  as  margin.  This  is  to  be 
checked  with  the  customer's  memory  or  his  check  stub.  The  second  item, 
the  purchase  of  100  Steel  at  108,  must  be  examined.  The  commission  is 
$12.50  and  the  total  proves  to  be  correct  for  the  debit  side.  The  third  item 
is  a  credit  of  a  cash  amount  of  $300,  which  is  a  dividend  on  100  Steel  com. 
For  convenience,  we  will  permit  Steel  to  be  ex-dividend  and  payable  the 
same  day.  Jones  must  find  out  that  Steel  paid  3%  and  be  sure  he  received 
$300  credit.  Then  there  is  a  sale  of  50  Steel,  which  is  a  credit.  The  sale 
is  at  106  and  the  commission  of  $6.25  and  also  $1  New  York  State  tax  is 
to  be  deducted  from  the  total  credit,  which  was  $5,300.  In  the  next  instance 
Jones  purchased  100  Anaconda,  to  which  $12.50  commission  must  be  added, 
and  later  sold  this  Anaconda  at  83^.  On  the  sale  the  $12.50  commission 
is  to  be  deducted  and  Jones  must  find  out  the  par  value  of  his  stocks,  which 
will  show  him  that  since  Anaconda  is  only  $50  par  value,  the  New  York 
State  tax  to  be  deducted  from  this  credit  is  only  $1  and  not  $2,  for  the  tax 
is  based  at  the  rate  of  2  cents  for  every  $100  par  value  of  stock  or  fraction 
thereof. 

There  is  left,  to  check,  the  item  of  interest.  Nearly  all  brokerage  book- 
keeping is  based  on  the  6%  method  for  convenience  of  the  bookkeeper.  This 
is  later  reduced  to  the  rate  which  is  to  be  charged,  whether  2,  3  or  4%.  A 
simple  and  easy  proof  for  Jones  is  to  multiply  the  principal  amount  by  the 
number  of  days  between  the  day  the  debit  or  credit  originated  and  the  last 
day  of  the  same  month,  then  mark  off  three  places  from  the  right  of  the 
total  and  divide  by  6.  This  result  is  6%  of  the  item.  On  the  example  shown 
the  difference  in  favor  of  the  debit  side  of  interest  is  $23.28.  The  broker 
charges  Jones  3%,  so  that  he  is  debited  one  half  of  the  amount  at  6%,  or 
$11.64.  Jones  will  then  add  up  both  sides  of  the  account  to  find  if  it  is 

14 


properly  balanced  and  also  add  the  amount  of  stocks  purchased  and  the 
amount  sold,  to  balance  these.  Finally  he  will  check  the  money  and  the  stock 
brought  down  for  the  next  month. 

Short  Accounts 

The  average  brokerage  firm  separates  "Short  Accounts"  from  "Long 
Accounts."  There  are  some  who  do  not  do  this  and  the  customer  should 
request  that  the  two  accounts  be  kept  separate  and  two  statements  rendered 
monthly  instead  of  one  statement.  The  broker,  as  a  rule,  will  allow  a  credit 
interest  on  margin  deposited  for  a  short  account,  but  does  not  allow  interest 
on  the  credit  balances.  However,  when  a  short  account  reaches  very  large 
proportions,  sometimes  the  broker  will  allow  the  customer  a  share  of  the 
interest  which  the  broker  gains  from  lending  the  money  to  borrow  the  stock 
for  the  customer. 

There  are  times,  also,  when  the  broker  will  charge  4%  or  5%  interest 
on  a  Long  Account,  but  only  allow  2%  interest  for  margin  deposited  for  a 
Short  Account.  There  are  also  instances  where  brokers  charge  the  pre- 
vailing average  interest  rate  for  the  month  on  debit  balances  but  only  allow 
the  customer  2%  on  credits  on  the  theory  that  small  amounts  cannot  be 
loaned  out  at  a  good  rate.  The  customer  has  a  perfect  right  to  object  to 
such  a  method  and  may  insist  that  all  margin  be  deposited  in  his  Long  Ac- 
count and  credit  be  given  at  the  same  rate  as  the  charge.  If  the  customer 
has  two  accounts,  Long  and  Short,  no  item  of  interest  will  appear  in  the 
statement  of  the  Short  Account.  It  is  the  best  plan  for  the  customer  to  have 
his  broker  divide  the  accounts  as  designated.  The  confusion  of  the  lay  mind 
in  checking  is  thereby  avoided. 

It  is  the  customer's  duty  to  find  out  why  a  certain  rate  of  interest  is 
charged,  if  he  has  any  doubts  as  to  the  propriety  of  his  broker's  charge. 

Compounding  the  Interest 

The  broker  renders  the  customer  a  statement  at  the  end  of  each  month. 
If  the  customer  has  a  debit  balance  of  $12,000  the  interest  at  6%  for  the 
first  month  will  be  about  $60.  This  is  added  to  the  debit  balance  and  the 
interest  charge,  at  the  end  of  the  second  month,  is  based  on  the  debit  of 
$12,060.  Thus  the  interest  is  compounded  twelve  times  a  year.  If  the 
customer  had  borrowed  this  $12,000  at  his  bank  on  a  year's  note  there  would 
be  but  one  interest  to  compute.  A  great  many  customers,  therefore,  find  it 
convenient  to  pay  the  interest  charge  each  month,  thus  saving  the  interest 
on  interest.  If  the  customer  retains  a  credit  balance  less  than  $500  with 
his  firm  and  the  account  is  not  active ;  that  is,  if  no  purchases  or  sales  are 
made,  the  law  prevents  the  broker  from  allowing  any  interest  whatsoever. 

Watching  the  Dividends 

All  dividends  accruing  on  stock  purchased  belong  to  the  customer  and 
not  to  the  broker.  The  broker  is  also  liable  for  these  dividends.  But,  to 
be  on  the  safe  side,  the  customer  should  find  out  as  soon  as  a  stock  is  pur- 
chased, how  much  it  pays  in  dividend,  when  the  books  close  (the  com- 
pany's books)  for  payment  to  stockholders  of  record,  and  the  date  the  divi- 
dend is  paid.  When  the  monthly  statement  is  rendered,  part  of  the  check- 
ing should  be  to  determine  if  the  customer  has  been  credited  the  dividend 
in  full  and  on  the  proper  date.  If  the  customer  is  "short"  stock  he  must  be 

15 


charged  with  the  dividend,  for  it  belongs  to  the  individual  from  whom  the 
stock  is  borrowed.  It  is  necessary  here  also  to  be  certain  that  the  charge 
is  a  correct  one. 

If  the  dividend  accruing  to  the  customer  comes  from  a  foreign  corpora- 
tion such  as  the  Canadian  Pacific  Railroad  Co.  or  the  Dome  Mines  Co.  Ltd., 
the  broker  is  forced  by  the  Income  Tax  law  of  this  country  to  deduct  2% 
from  the  amount  unless  the  customer  furnishes  an  ownership  certificate 
claiming  exemption  under  the  tax  law.  For  the  ordinary  U.  S.  citizen 
desiring  to  claim  such  exemption  the  form  of  certificate,  number  1000B,  is 
used,  and  for  the  firm,  1001. 

Checking  the  Bonds 

Bonds  purchased  or  sold  for  the  customer  offer  the  greatest  difficulty. 
These  should  be  checked  for  errors  very  carefully.  Unless  otherwise  speci- 
fied, bonds  are  sold  "with  interest."  The  customer  who  buys  a  bond  with 


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interest  due  on  April  1  which  is  purchased  on  March  1  pays  interest  to  the 
seller  from  the  preceding  interest  date,  which  is  likely  to  be  in  this  case 
Oct.  1.  The  customer  is  then  entitled  to  the  full  coupon  due  on  April  1. 
No  coupons  will  be  cashed  without  an  ownership  certificate  and  it  is  the 
duty  of  the  customer  to  provide  his  broker  with  such  ownership  certificate 
before  the  date  of  April  1. 

The  extension  of  the  charge  for  the  purchase  may  easily  be  proved  by 
figuring  the  interest  at  the  bond  rate  from  the  previous  period  of  payment 
on  the  30  days  a  month  basis.  Usually  the  broker  itemizes  his  interest  in  the 
statement.  If  he  does  not  do  this  the  customer  should  insist  upon  it. 

Customers  must  make  certain  that  they  are  not  charged  interest  on 
When  Issued  trades.  The  broker  has  simply  given  a  contract  for  this  class 
of  purchase  and  no  money  passes  unless  the  price  on  such  purchase  falls 
rapidly,  when  the  broker,  who  purchased,  may  be  asked  to  deposit  margin 

16 


covering  such  difference  in  price  with  a  trust  company.  In  this  case  the 
customer  is  properly  charged  with  interest  on  the  amount  so  paid. 

The  customer  should  ask  about  the  loaning  rates  for  stocks  which  he  is 
carrying  in  his  account.  If  such  stocks  should  loan  at  a  premium — that  is, 
if  the  demand  for  borrowing  is  so  great  that  the  borrower  is  willing  to  pay 
a  bonus — the  customer  is  entitled  to  such  premium  or  bonus.  This  item 
should  be  credited  to  him  on  his  statement  and  it  is  possible  to  check  it  by 
estimating  the  number  of  days  the  stock  loaned  at  a  premium  and  multiply- 
ing by  the  premium  rate.  Thus  if  100  New  Haven  loaned  at  a  1/16  premium 
for  5  days  the  credit  to  the  customer  should  be  5  times  $6.25  or  $31.25. 

Another  item  to  investigate  is  charge  for  collection  on  out-of-town 
checks.  The  Federal  Reserve  system  now  has  a  definite  charge  for  every 
locality  and  it  is  very  easy  to  get  such  a  list  of  charges  from  the  bank  where 
the  customer's  account  stands  and  check  it  against  any  such  charges  appear- 
ing on  the  statement. 

The  very  first  thing  for  a  neophyte  in  the  business  to  do  is  to  have  his 
brokers  explain  every  item  of  the  statement.  And  it  is  not  only  errors  of 
commission,  but  errors  of  ommission,  which  may  cause  trouble.  Therefore 
the  customer  must  fortify  his  knowledge  by  a  thorough  knowledge  of  the 
business  before  entering  it.  The  knowledge  of  the  par  value,  dividend  rate 
and  dividend  date  of  all  stocks  dealt  in,  the  knowledge  of  the  why  and 
wherefore  of  the  interest  charge,  the  certainty  of  the  commission  charges 
on  the  Stock  Exchange,  Curb  and  Unlisted  departments — all  these  are 
part  of  the  customer's  necessary  education.  It  is  better  to  get  this  educa- 
tion first  hand,  by  inquiry,  than  to  get  it  by  experience  and  monetary  loss. 


17 


The  Matter  of  Margins— Rights  of  Broker 
and  Client 

MARGIN  is  the  equity  actually  belonging  to  the  customer  who  has 
an  account  with  his  broker.  If  a  man  owns  a  house  and  lot  for  which 
he  has  paid  $10,OOOand  on  which  he  has  placed  a  $6,000  mortgage,  his  equity 
is  $4,000.  This  $4,000  is  his  margin  in  the  property.  If  he  buys  100  Steel 
at  113  and  gives  his  broker  $1,000,  his  margin  is  $1,000,  and  there  is  no 
economic  difference  between  the  real  estate  deal  and  the  stock  deal.  Should 
the  property  decline  in  value  to  $8,000,  the  margin  would  be  reduced  to 
$2,000.  If,  in  the  second  case,  Steel  declines  to  110,  the  equivalent  of  3 
points  on  the  100  shares,  the  margin  is  reduced  $300  and  becomes  $700.  In 
brokerage,  relating  to  stock  and  bonds,  margin  is  figured  on  the  basis  of 
points :  each  point  loss  on  100  shares  reducing  the  margin  $100  and  each 
point  gain  increasing  the  margin  $100  on  100  shares  of  stock,  or  on  ten 
$1,000  bonds.  The  clearest  idea  for  the  customer  to  utilize  in  understand- 
ing margin  is  to  think  of  it  as  an  installment  on  the  purchase  of  stock  or  the 
buying  of  an  option.  To  quote  Todman  "If  he  deposits  a  ten  point  margin 
on  a  stock  selling  at  par,  he  can  carry  ten  times  as  much  stock  as  he  could 
if  he  had  to  pay  the  full  purchase  price,  and  his  profits  or  losses  are  cor- 
respondingly increased."  The  margin  for  a  "short"  account  is  considered 
in  exactly  the  same  manner,  only  the  situation  is  reversed  in  the  matter  of 
price.  The  rise  in  the  market  decreases  the  margin  in  this  case. 

Therefore  the  margin  on  a  "long"  account  can -be  denoted  in  formula 
as  follows: 

Selling  price — Debit  Balance-r-No.   Shares = Point   Margin. 
The  Margin  on  a  "short  account"  can  also  be  in  formula : 
Credit  Balance — Purchase  Price-f-No.  Shares = Points  Margin. 


© 


Margin  Card 


JfayJ* 


96 


II,  0.00 


990 


9.600 


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ledger  Account 


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DR. 


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CR. 


11.312 


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1.  Market  price  at  close  of  March  22. 

2.  Actual  difference  of  balance  of  ledger  a/c.  (subtract  Cr.  from  Dr.). 

3.  Excess  of  sales  value  over  actual  debit. 

4.  Divide  210  share  long  into  1070  =  5  +  points  margin. 

5.  Success  Mines  not  figured  as  any  value. 

6.  Allowance  must  be  made  for  interest  and  commissions. 

7.  Steel  margined  to  105,  Utah  to  91,  Bond  to  90. 

\.  St.  Paul  sold — profit  enters  into  ledger  balance. 

18 


The  Amount 

There  is  no  set  rule  regarding  the  amount  of  margin  necessary  for  the 
customer  to  deposit  for  speculative  purposes.  This  amount  depends  upon 
two  elements :  the  kind  of  security  speculated  in  and  the  conservative  or 
anti-conservative  position  of  the  brokerage  firm.  However,  custom  has 
decreed  certain  rules  of  a  general  nature  which  rules  generally  act  as  a  basis 
for  marginal  transactions.  The  ten  per  cent,  margin  on  active  securities 
dealt  in  on  the  New  York  Stock  Exchange  is  about  the  minimum  that  any 
"good"  firm  will  accept  and  the  customer  is  much  better  protected  by  keep- 
ing a  margin  of  from  20%  to  50%.  This  20%  rate  would  cover  specula- 
tion in  stocks  like  the  active  copper  issues,  Utah,  Ray,  Chino,  and  Anaconda, 
or  in  rails  such  as  St.  Paul,  New  York  Central,  Union  Pacific  or  Atchison. 
An  inactive  stock  or  a  very  high  priced  stock  such  as  Delaware,  Lackawanna 
&  Western,  National  Biscuit  or  Bethlehem  Steel  (before  the  change  in 
parity),  would  probably  demand  a  very  much  higher  margin,  but  the  amount 
would  depend  upon  the  judgment  of  the  broker  who  carries  the  account. 
There  are  really  very  few  curb  securities  which  are  carried  on  margin  un- 
less they  are  of  a  nature  which  the  broker  can  use  in  his  loans.  Such 
issues  as  Magma,  Midvale  Steel,  Lima  Locomotive  and  some  of  the  motor 
stocks  are  acceptable  and  can  be  carried  much  as  regular  Stock  Exchange 
stocks.  Other  issues  with  a  low  par  value  and  low  price  can  be  carried  on 
a  ten  point  margin  by  the  customer,  and  in  this  case  the  broker  usually 
loans  the  difference  from  his  own  capital.  The  better  grade  of  oil  stocks 
and  mining  stocks  and  some  industrials  are  of  this  class.  Mining  stocks 
selling  at  cents  per  share  are  seldom,  if  ever,  classed  as  marginal  stocks 
by  conservative  firms  doing  Stock  Exchange  business  and  mining  stocks 
which  are  mere  prospects,  are  debarred  from  marginal  rights. 

Unlisted  and  Bonds 

Very  few  firms  will  accept  unlisted  securities  on  margin,  except  where 
the  particular  unlisted  security  has  been  "brought  out"  by  the  same  firm 
with  which  the  customer  is  trading.  The  market  for  unlisted  stock  is 
usually  so  wide,  the  bid  and  offer  prices  usually  are  points  apart  instead  of 
eighths  apart,  that  there  would  be  little  chance  of  protection  for  the  broker 
in  time  of  panic.  But  if  Jones  &  Co.  introduced  American  Manufacturing 
Co.  to  the  public,  they  have  a  certain  knowledge  of  the  market,  so  if  the 
trader  desires  to  carry  this  stock  on  margin,  he  is  apt  to  be  successful  with 
Jones  &  Co.  while  no  other  broker  would  even  think  of  accepting  the  ac- 
count. However,  there  are  exceptions  to  every  rule  and  almost  all  brokers 
will  accept  the  better  grade  of  Public  Utility  unlisted  stocks  as  margin  to- 
day. Stocks  like  Cities  Service  and  Republic  Ry.  &  Light  are  in  this  class. 
It  must  be  remembered,  however,  that  in  all  the  stocks  mentioned  as  illustra- 
tions, the  consideration  which  the  broker  has  in  mind  is  not  value  but 
marketability. 

Listed  bonds  are  very  little  better  as  margin  so  far  as  the  broker  is 
concerned  than  unlisted  bonds.  Bonds  are  considered  as  good  margin 
material  when  they  are  not  used  in  large  quantities. 

The  Legal  Side 

According  to  the  general  laws  of  nearly  all  states,  the  broker  cannot 
sell  the  account  of  the  customer  trading  on  margin  to  protect  himself  with- 
out first  giving  due  notice  to  the  customer. 

19 


If  due  notice  has  been  given  and  the  broker  arrives  at  the  stage  of  pro- 
ceedings where  the  account  may  be  sold,  the  law  states  that  the  sale  must 
be  at  a  public  market.  The  New  York  Stock  Exchange,  the  Consolidated 
Exchange  and  the  Curb  market  are  not  public  markets,  and  ordinarily  the 
broker  must  legally  advertise  the  sale  and  sell  at  public  auction.  The 
reader  will  readily  see  that  such  protection  for  the  broker  is  no  protection 
at  all.  Thus,  the  custom  arose  for  the  broker  to  make  an  agreement  with 
each  client  when  trading  relations  began,  giving  the  broker  permission  to 
use  his,  the  broker's,  discretion  when  it  was  time  to  sell  out  an  account. 
In  addition  to  this  initial  agreement  which  each  customer  is  usually  asked 
to  sign,  the  broker  has  printed  on  his  notices  an  agreement  of  this  nature: 

It  is  agreed  between  broker  and  customer: 

1.  That  all  transactions  are  subject  to  the  rules  and   customs  of  the  New 
York  Stock  Exchange  and  its  Clearing  House   Cor  the  Consolidated  Exchange, 
or  the  New  York  Curb  Association,  etc.,  etc.) 

2.  THat   should   the   broker   advance   all  or  part  of  the  purchase  money,  he 
reserves  the  right  to  sell  the  customer's   securities  at   said  broker's   discretion 
at  any  time  without  notice  and  at  public  or  private  sale,  when  in  said  broker's 
opinion  the  condition  of  the  account  warrants  such  action. 

3.  That  all  securities  from  time  to  time  carried  in  the  customer's  marginal 
account  or  deposited  to  protect  the  same,  may  be  loaned  by  the  broker,  or  may 
be  pledged  by  him  either  separately  or  together  with  other  securities,  either  for 
the  sum  due  thereon  or  for  a  greater  sum,  all  without  further  notice  to  the 
customer. 

Illustrations 

1.  Smith  buys  100  Steel  com.  at  113  and  gives  his  broker  $2,000.    The 
broker  figures  the  margin  by  dividing  the  100  shares  into  the  $2,000  which 
gives  Smith  20  points  margin. 

(For  the  purpose  of  illustration  and  to  avoid  too  many  figures,  there  will 
be  omitted  from  the  illustrations  the  items  of  commission  and  incidental  charges. 
As  above,  the  commission  for  buying  and  selling  the  one  hundred  shares  would 
be  twice  */&  of  1%  or  $25,  and  the  interest  item  would  depend  on  the  time  the 
stock  was  carried  in  the  account.) 

If  Steel  com.  declines  to  93,  a  twenty  point  loss,  the  broker  would  sell 
the  100  shares,  provided  Smith  did  not  place  more  margin.  The  stock  cost 
$11,300  and  was  sold  for  $9,300,  a  difference  of  $2,000,  just  the  amount  of 
the  margin. 

2.  Smith  gives  the  broker  $2,000  Reading  gen.  4%  bonds,  market  value 
$2,000  and  buys  100  Steel  at  113.     Every  $1,000  bond  is  equivalent  to 
10  shares  of  stock  in  margin  figuring.     Smith  has  now  120  shares  of  stock, 
or  a  margin  of  16  2/3  points.    The  broker  has  loaned  Smith  the  full  purchase 
price  of  the  Steel,  $11,300.    If  the  price  of  Steel  drops  to  95  and  the  value 
of  the  bond  to  90  the  margin  will  be  wiped  out.    The  broker  will  sell  100 
Steel  for  $9,500  and  the  bonds  for  $1,800,  a  total  of  $11,300  which  he 
originally  invested  for  Smith. 

3.  Smith  gives  his  broker  the  $2,000  bond  and  buys  100  Steel  at  113 
as  above,  but  in  addition  he  purchases  1,000  Success  Mines  on  the  Curb  at 
45  cents  ($450).    The  average  broker  will  not  even  include  this  stock  in  the 
margin  and  will  deduct  the  $450  at  once  from  Smith's  margin  credit.    If  the 
bonds  drop  to  90  ($1,800)  the  broker  will  sell  the  Steel  at  99%. 

20 


First  position  in  example  3: 

.$2,000  Rdg.  4%  bond $  2,000 

100  Steel   11,300 


Value  of  account  $13,300 


Cost  of   100   Steel    11,300 


Equity  or  Margin  $  2,000 

Second  position  in  example  3: 

$2,000  Rdg.  4%  bond  $  1,800 

100  Steel   9,950 

$11,750 
Less  cost  of  Success 450 

Value   of  account $11,300 

Cost  of  100  Steel 11,300 

Equity  or  Margin  $         0 

In  the  third  example  shown,  the  broker  would  protect  himself  by 
placing  a  stop  order  on  Steel  at  99^  and  the  Rdg.  bond  at  90.  When  these 
two  were  sold  the  account  would  be  even,  eliminating  the  matter  of  com- 
missions and  interest,  and  the  broker  woud  probably  turn  over  the  Success 
Mines  to  the  customer  to  do  with  as  he  desired.  When  the  stock  declines 
or  advances  as  the  case  may  be,  so  as  to  come  near  the  limit  of  margin  fur- 
nished, the  broker  may  demand  any  one  of  three  actions  by  the  customer: 
to  supply  additional  margin,  take  up  the  account  in  full  direct,  or  have  it 
transferred  to  another  firm. 

The  famous  Hughes  Commission  reported  the  following  on  margins: 

"Purchasing  securities  en  margin  is  as  legitimate  a  transaction  as  a  pur- 
chase of  any  other  property  in  which  part  payment  is  deferred.  We  therefore 
see  no  reason  whatsoever  for  recommending  the  radical  change  suggested,  that 
margin  trading  be  prohibited.  .  .  .  Two  practices  are  prolific  of  losses — 
namely,  buying  active  securities  on  small  margins  and  buying  unsound  securities, 
paying  for  them  in  full.  .  .  .  The  amount  of  margin  which  a  broker  re- 
quires from  a  speculative  buyer  of  stocks  depends,  in  each  case,  on  the  credit 
of  the  buyer ;  and  the  amount  of  credit  which  one  person  may  extend  to  another  is  a 
dangerous  subject  on  which  to  legislate.  ...  In  preference,  therefore,  to 
recommending  legislation,  we  urge  upon  all  brokers  to  discourage  speculation 
upon  small  margins  and  upon  the  Exchange  to  use  its  influence,  and,  if  neces- 
sary, its  power,  to  prevent  members  from  soliciting  and  generally  accepting  busi- 
ness on  a  less  margin  than  20%." 


21 


Transfer  of  Stock— Safeguarding  Against 
Unreliable  Firms 

**  /^ENTLEMEN:  About  three  weeks  ago  I  purchased  200  shares  of 
^J  Green  Monster  Mining  stock  through  Messrs.  Brown  &  Jones,  and 
sent  them  a  check  to  pay  for  the  stock  in  full.  I  asked  them  to  transfer  it  to 
my  name  and  send  it  to  me.  I  have  written  to  them  twice  and  all  the  reply 
I  get  is  that  the  stock  is  in  transfer.  I  am  afraid  that  something  must  be 
wrong  and  I  am  quite  worried.  Are  they  responsible  people  and  can  you 
tell  me  why  I  should  have  to  wait  so  long?" 

(Signed)       JOHN  SMITH. 

The  above  letter  denotes  two  things :  The  first  that  the  writer  has  not 
investigated  the  brokerage  firm  sufficiently  to  have  confidence  and  the 
second  that  he  knows  little  about  the  conditions  relating  to  the  transfer  of 
stock.  The  subject  is  a  large  one  and  has  a  multitude  of  side  details  which 
need  not  be  a  part  of  the  knowledge  of  the  investor,  but  the  investor  should 
know  the  fundamental  principles  of  transferring  stock  and  the  various  rea- 
sons which  cause  delays  and  trouble.  In  addition  to  this,  there  are  safe 
plans  for  the  investor,  living  at  a  distance  from  his  broker,  to  follow.  It 
is  the  purpose  here  to  instruct  in  such  fundamentals  and  offer  a  suggestion 
or  two  for  safeguarding  against  an  unreliable  firm  or  an  over-sensitive 
imagination. 

The  Form  In  Use 

The  purchase  of  shares  of  stock  outright  makes  the  purchaser  a  partner 
in  the  corporation  and,  both  for  the  new  owner's  protection  and  the  safe- 
guarding of  dividends,  his  shares  should  be  registered  in  his  name,  both  on 
the  certificate  representing  ownership  and  on  the  company's  books.  When 
the  stock  is  purchased  it  reaches  the  broker  in  a  former  owner's  name.  On 
the  back  of  the  certificate  appears  the  following  form : 

For  value  received  hereby  sell  and  transfer  unto 

(1) Shares  of  the  Capital  Stocl< 

represented  by  the  within  certificate,  and  do  hereby  irrevocably  appoint  and 

constitute  (2)  Attorney  to  transfer  the  said  stock  on 

the  Books  of  the  Within  named  Corporation,  with  full  power  of  substitution  in. 
the  premises. 

Dated  

In  the  presence  of    (3)   

The  certificate,  when  it  reaches  the  broker  has  been  signed  by  the 
former  owner  in  space  (3),  also  duly  dated  and  witnessed.  Everything  else 
is  left  blank.  The  investor  has  instructed  the  broker  to  make  the  stock  out 
in  his,  the  investor's  name,  so  the  broker's  clerk  fills  in  on  line  (1)  "John 
Smith,  123  Adams  St.,  Chicago,  111.,"  and  sends  it  to  the  transfer  office. 
The  transfer  agent  of  the  corporation  then  issues  a  new  certificate  to  John 
Smith.  Line  (2)  in  the  above  form  is  filled  in  by  the  transfer  agent  of  the 
corporation  when  actual  transfer  is  made,  but  this  granting  of  attorneyship 
is  used  also  to  make  the  stock  non-negotiable,  as,  for  example,  when  send- 
ing through  the  mails.  The  customer  owning  and  selling  the  stock  may 
desire  to  send  it  to  New  York  from  Michigan.  He  does  not  know  to  whom 
the  stock  has  been  sold,  so  he  simply  gives  his  broker  attorneyship  to  make 
the  transfer,  by  filling  in  on  line  (2)  "Brown  &  Jones."  When  Brown  & 

22 


Jones  receive  the  certificate  they  in  turn  stamp  on  the  back  another  attorney 
form  and  sign  in  blank,  so  that  the  next  buyer  or  the  transfer  agent  can 
be  attorney  at  the  actual  moment  of  transfer. 

The  Business  Almanac  summarizes  the  care  which  should  be  observed 
in  making  a  transfer.  If  the  name  is  filled  in  wrong  on  line  (1)  there  is 
endless  red  tape  necessary  to  undo  the  error.  It  is  always  safe  for  the  in- 
experienced to  have  a  broker  or  bank  do  the  transferring,  and  where  legal 
papers  are  necessary,  novice  attempts  are  disastrous: 

"Transfer  agents  often  insist  upon  being  satisfied  as  to  the  genuineness  of 
the  signatures  on  the  back  of  the  stock  certificates,  especially  in  cases  where 
the  parties  to  the  transaction  are  unknown  to  them.  In  such  cases,  it  may  be 
found  necessary  to  have  the  signatures  attested  by  a  notary,  or  guarantee^ 
by  some  bank  or  brokerage  house,  with  whom  the  agents  have  frequent  trans- 
actions. Any  error  in  the  making  out  of  the  new  certificates,  or  their  loss, 
should  be  reported  at  once  to  the  transfer  agents. 

"Administrators,  trustees,  guardians,  etc.,  should  use  great  care  in  making 
stock  transfers.  Such  persons  should  not,  of  course,  have  stocks  transferred 
to  themselves,  as  individuals,  but  to  themselves  'as  administrators,  guardians, 
trustees,  etc.,'  as  the  case  may  be.  Husband  and  wife  should  not  transfer  stock 
one  to  the  other,  except  through  the  transfer  agent,  unless  the  laws  of  the 
state  of  their  legal  residence  permits  such  transfers  to  be  made  direct." 

Reasons  for  Delay 

If  the  firm  with  which  the  investor  is  dealing  is  a  responsible  one  and 
is  not  of  the  "bucket  shop"  variety,  it  desires  to  expedite  the  orders  for 
transfer  as  quickly  as  possible.  But  there  are  various  reasons  for  delays 
and  oftentimes  the  firms  do  not  instruct  the  client  as  clearly  as  they  should 


IRREVOCABLE  STOCK  POWER 


ICttnnt  all  Mtn  bg 


ItHtto  J&Pr£UJ£H   have  Bargained,  sold,..assigned,  and  transferred,  and  by  these  presents 
do  bargain,  sell,  assign,  and  transfer  unto .^. ._... 


_STOCK  of 


standing  in...^..,...uiame  on  the  books  of  the 


represented^  certificate  No.  _,.:_____ ^ __; .. herewith 

... —  do  hereby  constitute  and  apjpomt...J#?^4/^._^ ^ 

and  lawful  Attorney,  IRREVOCABLY,  fon/<?*^'....and  in..J#^Lr.-name  and  stead  but 
use,  to  sell,,  assign,  transfer,  hypothecate,  pledge  and  make  over  all  or  any  part  of  tlie  said 
stock,  and  for  that  purpose  to  make  and  execute  all  necessary  acts  of  Assignment  and  transfer  thereof, 
and  to  substitute  one  or  more  ocrsons  with  like  full  power,  hereby  ratifying  and  confirming  all  that 

— nby* said  Attorney  or.jfe<A/ substitute  or  substitutes  shall  lawfully  do  by  virtue  hereof. 

3tl    J8ttU£fi5    Hbma£-5/ .  -have    hereunto    set__ .^f^._hand    and    seaT  at 


Signed,  Sealed,  and  delivered  in  the  presence  ol 


23 


regarding  such  reasons.    The  following  are  some  of  the  various  reasons  for 
these  delays: 

1.  It  is  very  possible  that  the  transfer  books  of  the  corporation  may  be 
closed,  either  for  a  dividend  adjustment  or  for  a  meeting  of  stockholders  or 
directors.    Sometimes  the  books  of  the  transfer  department  are  not  open  to 
any  change  for  four  or  five  weeks.    The  broker  will  have  to  hold  the  stock 
in  his  possession  until  the  date  for  re-opening  the  books  arrive. 

2.  Sometimes,  especially  in  inactive  issues  of  securities,  there  is  con- 
siderable delay  in  the  delivery  of  the  stock  by  the  seller  to  the  purchaser. 
For  example,  Commonwealth   Ry.,  Light  and  Power  stock   or  Advance 
Rumley  bonds,  both  of  which  are  dealt  in  "over  the  counter,"  and  not  in  a 
regular  market,  may  be  sold  by  a  man  in  Denver  to  a  New  York  broker 
whose  customer  lives  in  Florida.     The  situation  with  respect  to  the  delay 
here  is  quite  obvious. 

3.  It  often  happens,  especially  in  mining  stocks,  that  there  is  no  transfer 
office  in  New  York  City,  but  that  the  actual  transfer  must  be  made  in  San 
Francisco,  or  at  a  mining  office  in   Idaho.     These  out-of-town  transfer 
offices  are  notorious  for  taking  their  time,  and  incidentally  charging  a  small 
amount  for  each  certificate  issued,  plus  registered  mail  amount,  so  that  the 
broker  very  often  has  to  write  two  or  three  letters  before  he  can  hurry  the 
delivery  of  the  new  certificate  from  the  transfer  office. 

4.  In  cases  of  reorganizations  or  the  deposit  of  stock  with  holding  or 
protecting  committees,  there  is  usually  always  a  delay.    As  a  rule  there  is 
a  stated  date  set  for  such  operations  and  so  much  stock  is  delivered  to  the 
transfer  office   at  once  that  the   clerical    detail  involved   prevents   quick 
service. 

5.  Sometimes  it  is  necessary  for  the  broker  to  make  a  double  transfer 
to  get  the  right  amounts.     Suppose  three  clients  purchased  a  total  of  90 
shares  of  Reading  the  same  day  at  the  same  time.     The  buyer  would  re- 
ceive either  a  90-share  certificate  from  the  seller  "through  transfer"  to  his 
own  name,  or  he  might  receive  a  100-share  certificate  and  give  ten  shares 
in  change;  but,  if  he  accepted  the  shares  through  the  transfer  office  to  his 
own  name,  not  wishing  to  give  up  the  name  of  his  clients,  he  would  be  com- 
pelled to  send  the  certificate  purchased  back  to  the  transfer  office,  filled  in 
on  line  (1)  to  all  three  clients'  names  denoting  the  number  due  each. 

Suggestions  for  Protection 

If  the  client  is  of  a  nervous  disposition  or  has  cause  to  safeguard  him- 
self in  every  way,  he  may  pay  the  broker  a  portion  of  the  purchase  price  and 
instruct  the  broker  to  send  the  certificates  of  stock  to  him  through  some 
bank,  with  draft  attached  for  the  amount  due.  When  the  amount  is  col- 
lected through  the  customary  banking  methods,  he  will  be  in  actual  possession 
of  his  stock  and  may  transfer  it  himself.  But,  being  somewhat  ignorant  of  the 
necessary  procedure,  he  fears  to  do  this ;  for  he  may  make  a  serious  error 
in  "filling"  in  the  names,  so  there  is  suggested  another  idea  in  this  con- 
nection. 

Almost  everyone  who  can  afford  to  purchase  stock  or  make  an  invest- 
ment has  a  bank  account.  All  banks,  no  matter  how  small,  have  New  York 
correspondents,  either  direct  or  indirect.  When  the  purchase  is  made  of  20 
Steel  common  by  Mr.  Smith,  of  Helena,  Mont.,  through  Messrs.  Brown  & 
Jones,  of  New  York,  Mr.  Smith  has  already  sent  his  check  or  money  order 
for  one-third  or  one-half  the  sum  to  the  above-named  brokers.  On  receiving 

24 


notice  of  the  purchase  of  the  stock,  Mr.  Smith  makes  his  arrangements  with 
the  First  National  Bank  of  Helena,  and  writes  instructing  his  New  York 
brokers  as  follows: 

New  York  City: 

Gentlemen :  I  have  received  your  receipt  for  $1,000,  which  I  recently 
sent  to  you  and  also  notice  that  you  have  purchased  for  my  account  20 
shares  of  Steel  common  at  116,  which  with  your  commission  amounts  to 
$2,322.50.  My  bankers  are  the  First  National  Bank  of  Helena,  Mont.,  and 
their  New  York  correspondent  is  the  Sixty-Fourth  National  Bank.  Please 
deliver  the  20  shares  of  Steel  common  with  bill  of  sale  and  tax  stamp  at- 
tached to  the  customer's  security  department  of  the  Sixty-Fourth  National 
Bank  of  New  York  City,  who  have  been  instructed  to  pay  you  $1,322.50  for 
the  above-mentioned  shares.  JOHN  SMITH. 

First  National  Bank, 
Helena,  Mont. : 

Gentlemen:  Please  instruct  your  correspondents  in  New  York  City, 
the  Sixty-Fourth  National  Bank,  to  accept  from  Messrs.  Brown  &  Jones 
20  shares  of  U.  S.  Steel  common  and  pay  them  $1,322.50.  You  may  charge 
me  the  above  amount  in  my  account  with  you.  Please  instruct  the  Sixty- 
Fourth  National  Bank  to  ship  the  20  shares  to  you  for  my  account  by 
registered  mail,  in  the  name  of  "(Mrs.)  Jane  O.  Smith,  321  Beachwood 
Place,  Helena,  Mont."  Messrs.  Brown  &  Jones  have  been  instructed  to 
attach  the  necessary  sales  ticket  and  cancelled  revenue  stamps,  and  you 
may  charge  me  also  the  necessary  amounts  incidental  to  the  transfer. 

JOHN  SMITH. 
The  Detached  Power  Method 

Another  method  of  protection,  not  quite  so  sure  in  its  insurance,  is  for 
the  client  to  make  a  deposit  of  partial  payments  as  in  the  former  instance, 
and  then  send  his  broker  a  detached  Power  of  Attorney,  as  shown  in  the 
graphic  with  this  article.  The  broker  is  fully  protected  in  case  you  do  not 
pay  the  amount  due  and  can  go  ahead  with  the  transfer  at  once.  When  you 
are  assured  by  your  broker,  or  the  transfer  office,  if  you  desire  ultra  pro- 
tection, that  the  certificate  is  really  in  your  name,  you  may  send  the  balance 
due  and  the  actual  certificate  with  the  detached  Power  of  Attorney  may  be 
sent  at  once.  This  method  is  also  used  by  those  who  desire  purchases  in 
their  names  but  desire  to  leave  the  stock  with  the  broker  for  collateral  on 
other  purchases. 

The  Meaning  of  Transfer 

Smith  makes  the  following  comment  on  transfers :  "The  act  of  placing 
a  certificate  of  stock  or  a  registered  bond  in  the  name  of  a  new  owner"  .  .  . 
"The  new  owner  of  a  stock  which  is  in  receipt  of  dividends  or  of  a  regis- 
tered bond  upon  which  interest  is  paid,  should  have  it  transferred  into  his 
name  before  the  closing  of  the  transfer  books  for  a  dividend  or  for  interest, 
for  the  check  for  the  dividend  or  for  interest  will  be  sent  to  the  person  in 
whose  name  the  stock  or  bond  stands." 

Every  transfer  office  has  its  own  rules  and  regulations  in  the  matter 
of  transfers  relating  to  estates,  trustee  funds,  corporation  holdings  of  other 
corporations  and  errors  and  lost  certificates.  The  banker  or  broker,  acting 
as  an  agent,  will  usually  be  glad  to  perform  this  service  for  clients,  and  it 
is  much  safer  to  have  transfers  effected  in  this  way. 

25 


How  Often  Do  You  Complain?—  Have  You  Sold 

the  Right  Stock?—  Odd  Lot  Prices—  Margin 

Calls—  Stop  Orders 


many  complaints  do  you  average  in  a  month?" 
This  question  was  asked  by  the  writer  and  the  reply  come  from 
the  manager  of  a  large  "wire"  Stock  Exchange  firm,  "about  one  hundred." 
At  first  thought  this  total  seems  enormous,  but  there  is  such  a  diver- 
gence of  opinion  between  customers  and  brokers  on  matters  pertaining  to 
the  brokerage  business,  that  it  is  really  remarkable  that  the  average  is  not 
larger.  You  can  say  all  manner  of  mean  things  to  a  man  and  not  start  an 
argument,  but  the  moment  you  hit  his  pocketbook,  trouble  begins. 

Interest 

The  largest  number  of  complaints  are  based  on  matters  pertaining  to 
Interest  and  Orders.  The  most  frequent  complaint  about  interest  is  in 
connection  with  the  rate  charged  for  the  month.  Those  customers  who  pay 
any  attention  to  this  detail,  usually  follow  the  averages  quoted  in  the  daily 
newspapers  and  mentally  take  a  balance,  or  average,  for  the  month.  When 
their  statements  arrive,  they  find  that  the  charge  is  from  one  to  one  and  a 
half  per  cent,  higher  than  their  calculations  and,  without  other  investigation, 
they  decide  that  the  broker  is  a  plain  everyday  robber.  But  just  to  confirm 
their  suspicions,  they  usually  drop  into  some  other  broker's  office  and  ask 
the  customers'  man  his  charge  for  the  month.  This  customers'  man  is  on 
the  lookout  for  new  business  ;  he  knows  why  the  question  is  asked  and 
quotes  a  rate  in  accordance  with  the  complainant's  idea.  Maybe  he  gets 
the  account.  But  if  the  customer  is  fair,  he  will  go  back  to  his  broker  and 
tell  his  story.  It  is  ten  chances  to  one  that  he  will  find  out  that  there  is 
little  if  any  difference  in  rates  between  the  two  firms,  based  on  the  kind  of 
an  account  he  has  or  the  quality  of  the  securities  he  is  carrying.  He  will 
also  learn  that  there  is  a  vast  difference  between  the  average  rate  of  the 
broker  and  the  average  call  newspaper  rate. 

Switching  about  from  broker  to  broker  is  very  much  like  changing 
doctors  every  week  or  so.  The  broker  learns  to  diagnose  the  client's  wants 
just  as  the  doctor  does,  and  if  he  is  prevented  from  gaining  such  diagnosis 
because  the  customer  is  impatient,  the  loss  falls  on  the  customer.  It  is 
often  better  to  stick  to  the  same  broker  so  long  as  he  is  honest  and  does  his 
best,  rather  than  to  take  chances  with  strangers  who  have  little  interest  in 
giving  personal  service. 

Orders 

Orders  are  the  basis  of  a  multitude  of  troubles.  Very  often,  the  broker 
takes  a  loss  to  save  letter  writing,  heated  controversies  and  the  loss  of 
customers.  He  may  take  this  loss  when  he  is  absolutely  in  the  right.  And 
it  is  the  "odd  lot"  orders  which  most  often  cause  the  complaints.  The 
customer  must  never  forget  that  "odd  lots,"  amounts  of  stock  less  than  100 
shares,  are  not  executed  by  the  brokerage  firm  through  which  the  custolmelPs""" 
Business  is  done.  There  are  four  or  five  firms,  with  members  on  the  floor 
of  the  Exchange,  who  do  not  do  business  for  individual  customers.  Their 

26 


customers  are  all  the  other  brokerage  firms  dealing-  direct  with  the  public. 
The  odd  lot  orders  are  filled  by  these  firms  on  the  basis  of  time,  so  far  as 
market  orders  are  concerned.     The  delay  in  getting  a  written  order  to  the. 
J'jodd  lot"  broker  on  a  very  busy  day  is  sometimes  serious,  butJthe£fi~is  no 


_p__  pre  ven  tsg_t 

"I  gave  you  an  order  to  sell  35  shares  of  Delaware  &  Hudson  at  1  p.  m. 
when  it  was  selling  on  the  tape  at  122.  Here  is  your  report  at  119.  The 
stock  sold  at  121^,  121,  120%,  120y4,  120,  119J4,  119  and  118%  and  do 
you  thing  I  am  going  to  stand  for  this  ?" 

This  is  a  sample  kick.  What  is  the  broker  to  do?  He  has  picked  out 
the  "odd  lot"  firm  which  he  thinks  gives  the  best  service.  It  is  true  that 
the  customer's  order  was  sent  over  the  telephone  a  few  moments  after  the 
stock  sold  at  122.  But,  while  the  order  was  on  the  way  over  the  'phone, 
written  by  the  'phone  clerk,  and  sent  by  messenger  to  the  floor  member  of 
the  "odd  lot"  firm  dealing  in  Delaware  &  Hudson,  some  regular  broker  had 
hammered  the  market,  on  every  bid  price  down  to  118%  and  had  possibly 
sold  1,000  shares  in  one  minute's  time.  By  the  time  the  odd  lot  order 
reached  the  proper  person  the  best  bid  was  119.  One  could  not  expect  the 
odd  lot  broker  to  give  more  than  the  market  price  ! 

The  result  is  that  the  customer's  broker  tries  to  argue  with  the  odd 
lot  representative.  Sometimes  he  is  able  to  get  a  better  price  and  at  other 
times  he  is  unsuccessful.  Rut  in  any  event,  the  concession  is  usually  made 
fry  tbf  °4d  lot  firm,  or  th 


Wrong  Securities 

A  member  of  another  large  firm  suggested  that  the  writer  call  attention 
to  complaints  arising  because  the  broker  has  sold  or  bought  the  wrong  kind 
of  security.  Not  so  long  ago  one  could  trade  in  Marine  Pfd.,  Marine  Pfd. 
Central  Trust  Co.,  Certificates  of  Deposit,  and  Marine  Pfd.,  New  York 
Trust  Co.  Certificates  of  Deposit.  A  customer  held  100  shares  of  the  New 
York  Trust  Certificates  and  gave  an  order  to  sell  100  shares  of  Marine 
Pfd.  Certificates.  The  sale  was  made  on  the  Exchange  where  only  the 
Central  Trust  certificates  were  dealt  in.  The  broker  could  not  deliver  the 
one  kind  against  the  other  sold,  for  it  cost  a  dollar  a  share  to  transfer  the 
New  York  Trust  kind  into  stock,  a  double  tax  of  $4  to  transfer  to  stock 
and  another  double  tax  of  $4  to  transfer  to  the  Central  Trust  certificates. 
Did  the  customer  kick  and  complain?  Of  course  he  did.  But,  if  he  had 
considered  that  the  order  clerk  did  not  know  what  he  possessed,  that  the 
time  for  action  was  limited,  and  that  it  is  generally  supposed  that  a  customer 
knows  what  he  has,  Mr.  Customer  would  have  realized  that  the  negligence 
was  on  his  part. 

There  are  quite  a  few  customers  who  have  sold  Texas  Co.  full  paid 
certificates  when  they  should  have  sold  stock  and  quite  a  few  more  who 
have  done  the  opposite.  No  doubt  they  have  all  made  complaints. 

Bond  Orders 

But  when  it  comes  to  bonds,  chaos  rules.  Unless  the  customer  states 
the  due  date  on  the  bond,  its  interest  periods,  and  any  other  necessary  data 
appearing  in  the  indenture,  at  the  time  of  sale  or  purchase,  it  means  trouble. 
The  writer  has  personally  seen  hundreds  of  dollars  lost  because  of  care- 
lessness in  giving  bond  orders.  Sometimes  this  falls  on  the  broker  and 

27 


sometimes  on  the  customer.  There  is  usually  a  variance  of  price  between 
registered  and  unregistered  bonds  of  the  same  issue.  In  an  issue  of  New 
York  City  bonds,  some  were  engraved  by  the  New  York  Bank  Note  Co. 
and  part  by  the  American  Bank  Note  Co.  Quite  a  few  owners  sold  New 
York  Bank  Note  engraved  bonds  on  the  New  York  Stock  Exchange,  where 
they  could  not  be  delivered.  There  are  other  issues  of  bonds  where  only 
certain  numbers  are  listed  for  sale.  These  numbers  may  run  from  1  to 
5,000  for  each  $1,000  bond.  Mr.  Customer  may  have  bond  number  5,021, 
and  if  it  proves  to  be  an  undeliverable  bond,  he  will  certainly  enter  a  vigor- 
ous complaint. 

Stop  Orders 

Stop  Orders  have  caused  many  heartaches.  Stop  orders  have  lost  many 
a  customer  and  no  one  loves  a  stop  order  but  the  specialist  in  the  stock, 
who  can  judge  his  market  by  the  amount  of  these  orders  he  carries  on  his 
books.  If  Mr.  Customer  would  only  realize  that  a  stop  order  is  not  a 
limited  order,  but  a  market  order  the  moment  his  price  is  reached,  he  might 
not  find  so  much  fault  with  his  broker.  But  this  seems  to  be  one  of  those 
unteachable  facts.  Then  again,  the  customer  seldom  tries  to  act  in  co-opera- 
tion with  his  broker  in  stop  orders,  or  the  broker  may  not  help  the  customer. 
It  is  not  always  wise,  especially  in  an  inactive  market  to  place  stop  orders 
too  far  away  from  the  market  price.  If  a  customer  has  700  shares  for  sale 
on  stop  at  114  and  the  market  is  118,  it  is  often  far  better  to  order  the 
broker  to  place  the  stop  with  the  specialist  when  the  market  reaches  115 
than  to  give  it  out  at  once.  This  prevents  the  general  public  from  "getting 
wise"  to  the  real  condition  of  the  market.  Floor  traders  and  specialists 
have  a  remarkable  habit  of  "gunning  for  stops."  On  the  other  hand,  when 
the  market  is  too  active  and  "jumpy,"  stops  at  too  close  range  are  very- 
dangerous.  The  writer  was  once  given  an  order  to  buy  100  Union  Pacific 
at  140  and  sell  it  at  a  one  point  stop.  The  Union  was  purchased  and  reported 
to  the  'phone  clerk.  The  market  took  a  sudden  downward  trend  and  in 
less  than  thirty  seconds  the  stop  was  reached  and  the  100  shares  sold  at  139. 
The  telephone  clerk  was  very  busy  and  the  report  for  the  purchase  and  sale 
reached  the  customer  at  the  same  time.  He  thought  he  had  a  real  complaint, 
but  the  broker  knew  he  hadn't.  However,  it  was  a  difficult  point  on  which 
to  convince  the  customer. 

Transfers  and  Dividends 

Complaints  about  transfer  delays  are  multitudinous.  The  facts  relating 
to  delayed  deliveries  of  purchases,  the  closing  of  the  transfer  books,  or  the 
case  of  an  out-of-town  transfer  office,  were  brought  to  the  attention  of 
readers  on  page  23  of  this  book.  These  complaints  are  readily  answered  and 
as  a  rule  there  is  no  serious  difficulty  over  them. 

Another  firm  mentioned  the  fact  that  out-of-town  customers  were  con- 
tinually complaining  that  they  did  not  receive  dividend  checks,  although 
stock  had  been  transferred  to  their  names.  The  usual  answer  to  this  is 
that  such  customers  had  neglected  to  file  proper  dividend  notices  directing 
where  checks  should  be  sent,  etc.,  with  the  transfer  companies.  Other 
customers  complained  that  deductions  had  been  made  on  dividends  of 
foreign  corporations  credited  to  them,  as  in  the  case  of  Canadian  Pacific  or 
Dome  Mines.  This  deduction  was  necessary  because  they  had  failed  to 
file  Income  Tax  Ownership  certificates  with  their  brokers. 

28 


Margins 

The  writer  during  his  interrogatory  travels  happened  to  mention  the 
word  "Margin."  The  partners,  clerks,  customers'  men  and  correspondence 
clerks  grew  pale  at  the  word.  When  can  an  account  be  sold  out  ?  What  is 
the  proper  margin?  What  constitutes  margin?  These  are  the  questions 
which  have  started  many  an  angry  word  and  changed  many  an  account. 

In  the  first  place,  every  careful  firm  doing  a  margin  business,  makes  an 
agreement  with  the  customer  at  the  time  he  opens  his  account.  This  agree- 
ment is  in  effect  that  the  broker  will  have  the  privilege  of  selling  out  the 
account  to  protect  himself  when  said  broker  believes  the  time  has  come  for 
this  action.  Of  course  it  is  not  to  be  supposed  that  the  broker  will  sell  out 
an  account  just  because  he  happens  to  want  to  do  it;  for  custom  has  ruled 
that  he  must  call  for  margin  from  the  customer  and  give  the  customer  a 
fair  chance  to  send  the  required  margin.  On  the  other  hand,  the  broker 
has  the  right  to  determine  whether  the  margin  sent  is  what  he  wants  or  does 
not  want.  Cash,  Certified  Check,  Draft  or  "Accepted  Check"  are  always 
good.  But  margin  in  the  form  of  other  stocks,  bonds,  or  notes,  no  matter 
how  valuable  to  the  customer,  may  not  seem  good  margin  to  the  broker. 
The  broker  is  acting  in  exactly  the  same  capacity  as  the  banker.  No  bank 
will  accept  a  loan  unless  it  is  satisfied  with  the  collateral  offered,  which  is 
usually  passed  on  by  the  directors  or  the  head  of  the  department  in  charge. 
In  like  manner  no  broker  may  accept  collateral  which  he  does  not  wish.  He 
may  demand  actual  legal  tender,  if  he  so  desires.  The  Inquiry  Department 
of  THE  MAGAZINE  OF  WALL  STREET  has  had  many  a  letter  of  complaint 
against  the  broker  because  the  customer  had  been  sold  out  after  sending 
additional  "mining  stock"  as  collateral  for  margin.  The  complainant  had  no 
real  complaint  and  he  had  to  be  told  so,  but  it  was  often  hard  to  make  him 
understand. 

_^xtJnless  the  market  has  reached  a  panicky  stage,  bullish  or  bearish,  it  is 
usual  for  the  broker  to  give  his  client  plenty  of  time  to  respond  to  a  margin 
call.  But  if  the  broker  has  used  due  diligence  to  get  word  to  the  client 
either  by  telephone  or  by  mail  to  the  given  address,  and  then  the  customer 
does  not  respond,  under  the  usual  agreement,  it  is  permissible  to  sell  or 
buy  in  the  account,  as  the  case  may  be. 

Statements 

Complaints  about  statements  are  in  many  cases  apt  to  arise  because  the 
speculator  or  investor  does  not  know  how  to  read  his  statement.  It  is 
unfortunate  that  so  many  different  forms  are  used  by  the  various  firms.  Of 
course,  outside  of  clerical  errors,  which  can  be  remedied  at  once  when  taken 
up  with  the  broker,  the  usual  differences  center  about  commissions  and 
interest.  The  item  of  interest  has  already  been  discussed,  and  there  should 
never  be  trouble  about  commissions  which  are  always  determinate  except 
in  unlisted  securities.  The  customer  having  an  active  account  should 
demand  a  list  of  regular  charges  made  by  the  New  York  Stock  Exchange, 
The  Consolidated  Exchange  and  the  New  York  Curb  Association.  If 
stocks  are  dealt  in  on  the  Boston,  Philadelphia,  Chicago,  Pittsburgh,  Mon- 
treal or  other  Exchanges,  these  charges  should  be  asked  for  in  advance 
and  kept  on  file.  Chicago,  for  example,  has  a  minimum  charge,  and  there 
are  many  firms  doing  business  on  the  New  York  Stock  Exchange  which 
have  a  minimum  charge  of  $2.  This  information  should  always  be  asked 

29 


for  and  given  in  advance;  otherwise  complaints  are  sure  to  be  part  of  the 
daily  troubles.  Usually  brokers  take  it  for  granted  that  customers  are 
acquainted  with  such  details  and  customers  take  it  for  granted  that  they 
should  have  been  told.  Surely  no  customer  would  sell  real  estate  without 
finding  out  the  commission,  and,  therefore,  why  place  the  responsibility  on 
the  broker  in  every  case?  There  is  a  set  rule  for  commissions  in  every 
market  except  the  so-called  unlisted,  or  "over  the  counter"  market  and 
where  such  securities  are  traded  in,  it  is  wise  to  ask  for  the  commission  to 
be  charged  before  the  order  is  given. 

Complaints  about  telephone,  telegraph,  or  personal  service  and  atten- 
tion are  of  such  a  nature  that  no  rule  can  be  set  or  the  subject  discussed  in 
this  chapter.  It  goes  without  comment  that  the  broker  owes  much  to  the 
client  in  this  feature,  and  the  only  suggestion  with  relation  to  this  feature 
is,  that,  if  the  customer  is  not  satisfied,  he  should  search  until  he  finds 
service  which  he  desires.  Some  customers  prefer  small  firms,  others  large 
firms;  some  wish  to  be  notified  of  changes  in  price  during  the  day  and 
others  do  not  wish  to  be  bothered.  This  is  a  matter  for  personal  adjustment. 


30 


Do  You  Use  Care  in  Signing  Proxies?— Have  You 

Been  Assessed  Without  Cause  ?— Personal 

Liability  Stock  Troubles 

THE  art  of  signing  one's  name  to  documents  without  knowing  just  what 
such  signature  might  lead  to,  is  an  old  one  and  is  daily  practised 
with  disastrous  results.  It  seems  rather  paradoxical  that  a  business  man 
who  is  accustomed  to  read  contracts  with  the  greatest  care  should  attach 
his  name  to  printed  legal  forms  without  careful  reading,  but  it  is  done 
daily.  This  might  be  expected  in  some  degree  where  uninformed  women 
are  concerned,  but  nearly  every  reader  of  this  article  has  at  some  time  or 
other  been  careless  in  this  detail.  In  ninety-nine  per  cent,  of  the  cases, 
there  has  been  no  damage,  but  the  remaining  one  per  cent,  has  caused 
heartaches  and  much  self-condemnation. 

The  Authorization— What  It  Cost  One  Man 

During  the  latter  part  of  October,  1916,  and  November  of  the  same 
year,  The  American  Hide  &  Leather  Co.  decided  to  readjust  the  accrued 
preferred  dividends  of  its  company  and  sent  out  to  stockholders  an  authoriza- 
tion form,  a  copy  of  which  is  shown  in  the  accompanying  graphic.  The 
reader  will  note  the  closing  sentence: 

"It  is  understood  that  I  am  not  liable  for  any  expense  or  Committee  charges 
incurred  under  this  power  of  proxy  and  of  attorney  in  excess  of  one  dollar  per 
share  of  stock  now  by  me  held,  and  that  I  am  to  be  furnished,  from  time  to  time, 
with  a  statement  of  results  and  efforts  of  the  Committee." 

Mr.  Jones,  of  Helena,  Mont.,  owned  100  shares  of  American  Hide  & 
Leather  Preferred.  He  received  the  notice  shown  in  the  graphic,  thought 
that  the  committee  of  prominent  men  knew  best  and  signed  the  document. 
This  signature  was  affixed  on  November  13,  1916.  Mr.  Jones  then  sold  his 
Hide  &  Leather  Preferred  and  forgot  all  about  the  authorization.  Maybe, 
Mr.  Brown  bought  the  stock  and  possibly  Mr.  Green  bought  it,  but  no  one 
knew;  for  the  purchaser  did  not  transfer  the  certificate,  which  remained 
in  Mr.  Jones's  name. 


AUTHOR;IZA-TION 

la  order  to  co-operate  with  the  stockholders  of  the  American  Hide  and  Leather  Company  in  an  eadeavor  to  readjust  the 
accrued  preferred  dividends,  secure  proper  representation  on  the  Board  of  Directors  and  remedy  .certain  unsatisfactory  con- 
ditions and  methods,  I,  ...............................  _  .....................  _  ................  „_  _          }  owner  of 

shares  of  stock,  certificates  numbers  ........................  ..............  „  ......  _...,  hereby  constitute  and  appoint  the  Committee  heretofore 

formed,  consisting  of  Anderson  Price,  Frederic  Drew  Bond,  Hans  P.  Freece,  or  a^majority  of  them,  or  their  successors,  as  my 
true  and  lawful  attorney  and  proxy  to  act  for  me  the  same  as  though  I  were  personally  acting,  to  vote  at  any  meeting  of  stock- 
holders, to  interrogate  the  officials  of  ,the  American  Hide  and  Leather  Company  with  regard  to  the  management  of  the  Company's 
affairs  and  to  demand  such  finsncial  and  operating  statements  from  them  as  I  might,  or  could,  or  would,  be  legally  entitled  to  so 
demand,  to  institute  and.  prosecute  suits,  and  for  this  purpose  to  consult  and  employ  counsel,  and,  in  general,  to  do  any  and 
all  things  which,  in  the  judgment  of  the  Committee,  shall  be  advisable  and  necessary,  to  carry  out  the  Ibove-named  purposes.  It 
is  understood  that  I  am  not  to  be  liable  for  any  expense  or  Committee  charges  incurred  under  this  power  of  proxy  and  of  attorney 
in  excess  of  one  dollar  per  each  share  of  stock  now  by  me  held,  and  that  I  am  to  be  furnished,  from  time  to  time,  with  a  statement 
of  results  and  efforts  of  the  Committee. 


Pated,  ..  >1916.  Signed: 

Witness:  ( 


31 


When  Mr.  Jones  opened  his  mail  one  morning  at  his  office,  he  found  a 
bill  from  The  American  Hide  &  Leather  Co.  asking  him  to  send  his  check 
for  $100.  Mr.  Jones  spoke  mentally  as  follows :  "Why,  I  have  sold  my 
stock.  I  have  no  further  interest  in  the  matter,  so  let  the  next  man  settle." 
He  tossed  the  request  in  the  waste  basket  and  dismissed  it  from  his  mind. 

But  not  for  long.  A  second  and  more  urgent  request  came.  Jones  com- 
menced to  think,  for  he  was  a  financially  responsible  man.  He  wrote  to 
the  committee  and  explained  that  he  had  sold  the  stock  before  the  assess- 
ment was  levied,  so  that  it  properly  belonged  to  the  man  who  made  the 
purchase.  In  due  course,  this  reply  came  from  the  lawyer  for  the  com- 
mittee. 

Mr.  H.  J.  Jones, 

Helena,  Mont. 
Dear  Sir: 

Replying  to  your  favor  of  April  7  in  reply  to  mine  of  March  27,  in  ref- 
erence to  your  indebtedness  to  the  Protective  Committee  of  the  Preferred 
Stockholders  of  the  American  Hide  &  Leather  Company,  I  beg-  to  state  that, 
according  to  your  authorization,  dated  Nov.  13,  you  obliged  yourself  to  pay 
to  this  committee  $1.00  for  each  share  of  stock  held  at  the  time  of  your  sign- 
ing this  authorization. 

The  fact  that  you  sold  your  stock  thereafter  does  not  in  any  way  affect 
your  obligation. 

It  is  not  the  fault  of  this  committee  that  you  sold  your  stock.  It  had  no 
control  over  your  actions..  Therefore,  we  expect  to  hear  from  you  by  return 
mail  with  your  check  enclosed. 

Very  truly  yours, 

Hans  P.  Freece. 

This  cost  Mr.  Jones  an  even  $100.    Please  take  warning. 

The  Proxy  Question — Are  You  Sure  You  Are  Right? 

During  the  past  few  years  The  Distillers  Company  of  America  had  an 
internal  dissension.  The  present  officers  and  directors  of  the  company  were 
attacked  by  others  who  had  previously  held  control  of  the  company,  on 
a  matter  of  policy.  The  cause  and  result  of  the  difference  are  not  pertinent 
to  this  article  in  themselves,  but  the  controversy  was  of  vital  importance  to 
every  stockholder.  Mr.  Jones,  of  Helena,  Mont.,  owned  100  shares  of  this 
stock. 

The  object  of  both  contestants  was  to  get  a  majority  of  proxies  from 
stockholders  who  would  not  be  able  to  attend  the  meeting,  and  of  course 
the  side  holding  the  majority  of  votes,  represented  by  the  proxies,  would 
obtain  control  and  direct  the  future  of  a  company  which  was  having  a  hard 
time  to  stand  up  under  the  storm  of  Prohibition  Gains.  As  usual,  one  fine 
morning  Mr.  Jones  found  a  proxy  from  the  company,  as  he  judged,  and  he 
carelessly  signed  it,  as  he  was  directed,  without  reading  the  subject  matter. 
He  was  accustomed  to  do  this  in  every  case.  A  few  days  later  he  received 
another  proxy.  With  this  proxy  came  a  letter  condemning  the  men  who 
were  directing  the  affairs  of  the  company,  and  stating  that  unless  this 
second  group  of  men  gained  control,  the  Distillers  Company  would  prob- 
ably "go  to  smash,"  or  words  to  that  effect.  Mr.  Jones  did  not  recall  that 
he  had  signed  a  previous  proxy  for  others,  so  he  signed  this  second  one. 
The  signing  of  the  second  proxy  at  a  later  date  voided  the  first  one. 

Now  Mr.  Jones  was  a  partner  in  the  Distillers  Company.  But  all  he 
thought  about,  as  a  partner,  was  how  his  dividends  might  be  affected.  He 
did  not  find  out  all  he  might  have  found  out  by  making  a  careful  investi- 
gation, but  he  "took  a  chance"  and  a  chance  like  this  might  have  thrown 
the  control  of  "his"  company  into  hands  which  would  not  develop  the 

32 


future  to  the  best  advantage  of  the  "little  partner,"  the  small  stockholder. 

Recently  there  has  been  some  kind  of  an  effort  made  to  get  the  small 
stockholders  together  so  as  to  make  their  work  effective  and  to  direct  all 
their  voting  efforts  towards  the  best  interests  of  the  corporation  in  which 
they  hold  stock.  It  is  really  the  duty  of  every  stockholder  to  find  out  all 
about  the  company  in  which  he  is  a  partner.  These  recent  efforts  of  co- 
operation have  been  somewhat  successful,  and  the  Inquiry  Department  of 
THE  MAGAZINE  OF  WALL  STREET  can  bear  witness  to  this  fact. 

If  the  stockholder  is  carrying  his  stock  on  margin  with  a  brokerage 
firm,  he  may  not  hold  this  stock,  which  he  owns,  and  on  which  he  is  borrow- 
ing money  from  his  broker,  in  his  own  name.  It  is  very  likely  that  the 
broker  has  transferred  the  stock  to  his,  the  broker's  name,  as  a  matter  of 
marginal  protection.  However,  the  client  is  the  actual  owner,  and,  if  he 
retains  his  interest  in  the  corporation  as  he  should,  it  is  his  privilege  to 
direct  his  broker  to  send  in  a  proxy,  or  refrain  from  sending  one  in,  or 
even  get  the  broker's  proxy  made  out  to  himself  for  use  at  the  meeting 
of  the  stockholders. 

Personal  Liability  Stocks — Why  They  May  Be  Expensive 

The  old  Minneapolis  &  St.  Louis  R.  R.  Co.  was  incorporated  under 
the  laws  of  Minnesota  and  Iowa.  Under  the  peculiar  state  laws  of  Minne- 
sota the  stockholders  are  liable  for  heavy  assessments,  and  it  is  always  the 
stockholder  of  record  who  is  liable.  Jones  may  have  had  100  shares  in  his 
name  in  1904,  and,  if  the  stock  was  assessed  in  1916,  even  though  Jones  had 
sold  it  in  1905,  he  would  be  called  upon  to  pay  this  assessment.  This  sit- 
uation could  exist  only  with  the  proviso  that  the  certificate  was  still  in  Jones' 
name  on  the  date  of  assessment.  In  this  very  connection  there  were  several 
lawsuits  and  in  every  case  the  courts  ruled  that  Jones  had  to  pay. 

Bank  stocks,  Trust  Company  stocks  and  many  Express  stocks,  such  as 
Adams  Express,  are  personal  liability  stocks.  Under  the  rules  of  the 
New  York  Stock  Exchange  the  purchaser  is  forced  to  give  the  seller  a 
"name"  for  transfer  at  the  time  the  stock  is  delivered  against  sale. 

Suppose  Jones  owned  100  shares  of  Adams  Express  stock  and  sold  it. 
Furthermore,  let  us  suppose  that  the  buyer  did  not  transfer  the  stock  out  of 
Jones'  name  and  that  three  years  after  the  sale,  Adams  Express  was  heavily 
assessed.  Jones,  if  he  was  financially  responsible,  would  be  compelled  to 
pay  the  costs,  although  he  was  not  the  actual  owner.  Many  holders  of  this 
class  of  security,  at  the  time  of  sale,  serve  notice  at  once  on  the  transfer 
office  of  the  company  in  question  that  they  are  no  longer  possessed  of  cer- 
tificate number  12436F  and  will  not  be  responsible  for  what  may  happen  in 
the  future.  Even  this  plan  is  not  always  successful  in  shifting  the  obliga- 
tions involved.  Nearly  all  large  brokerage  firms,  possessed  of  this  class  of 
security,  arrange  to  transfer  the  stock  to  the  names  of  one  or  more  of  their 
clerks  who  are  not  overburdened  with  worldly  goods. 

Assessments — Loss  From  Not  Paying  Them 

When  a  stock  calls  for  an  assessment  and  it  is  voted  on  by  a  majority 
of  the  stockholders  at  a  regular  meeting,  it  is  necessary  for  the  holder  to 
pay  such  assessment  or  lose  his  stock.  In  some  cases,  however,  the  stock 
may  be  traded  in  as  "assessment,  unpaid,"  first  paid,  second  paid,  etc.  But 
this  is  in  case  that  a  definite  date  has  not  been  set  for  such  assessments. 

33 


Those  stockholders  of  the  old  Wabash  Railroad  who  did  not  pay  the  assess- 
ments have  worthless  paper  on  their  hands  at  the  present  time.  There  are 
men  still  alive  who  owned  Northern  Pacific  when  it  was  assessed,  who 
refused  to  pay  the  money  desired,  and  today  they  have  waste  paper  to  show 
for  their  original  purchase.  Stockholders  of  Missouri  Pacific  who  did  not 
deposit  their  stock  under  the  reorganization  plan  and  arrange  to  pay  the 
assessments  of  course  lost  what  they  originally  paid  for. 

Whenever  these  Protective  Committees  are  formed,  whenever  it  is 
possible  to  exchange  stock  of  a  wabbly  company  for  certificates  of  deposit  of 
a  holding  committee,  or  whenever  an  assessment  is  called  for,  the  wise 
thing  to  do  is  to  GET  ADVICE.  Usually  the  legal  complications  involved 
are  too  much  for  the  layman,  and  it  is  proper  and  right  for  the  broker  or 
the  Personal  Inquiry  Service  Department  of  THE  MAGAZINE  OF  WALL 
STREET  to  be  called  upon  for  advice  and  direction.  In  almost  all  cases  a 
final  date  is  set  for  depositing  stock  and  making  payments  of  assessments. 
The  broker  customarily  informs  the  customer  of  such  dates  and  gets  his 
permission  to  act,  but  this  service  is  a  voluntary  one  on  the  part  of  the 
broker,  and  it  is  doubtful  if  he  can  legally  be  held  for  any  error  or  laxity 
in  this  connection. 


34 


Lost  Certificates— How  to  Prevent  and  Insure  Against 

Theft— What  to  Do— Whom  to  Notify— Value 

of  the  Safe  Deposit 

WHAT  is  the  first  thing  to  do  when  you  find  out  that  you  have  lost 
a  certificate  of  stock?  What  would  you  do  if  you  discovered  that 
you  had  lost  a  coupon  bond  unregistered? 

The  danger  from  this  source  is  always  present,  no  matter  how  carefully 
plans  are  made.  It  is  not  more  than  a  year  ago  since  the  registered  mails 
were  looted  on  the  way  from  Baltimore  to  New  York.  Many  of  the  stolen 
securities  were  found,  but  some  were  never  recovered.  The  heavy  loss  fell 
upon  the  sender  and  in  one  or  two  cases,  the  sender  happened  to  be  of  the 
individual  type  and  not  a  firm  or  corporation.  It  might  just  as  well  have 
been  a  reader  of  THE  MAGAZINE  OF  WALL  STREET.  It  is  an  insurance  to 
know. 

If  you  own  stock,  have  it  registered  in  your  name.  This  is  the  first 
step  in  insurance.  There  are  two  ways  of  safeguarding  this  stock.  The 
first,  when  it  is  in  the  possession  of  the  owner,  and  the  second  when  it  is  left 
for  safekeeping  with  the  bank  or  the  broker. 

Safe  Deposit  Vaults  or  Your  Broker 

The  safe  deposit  vault  is  the  greatest  protection  for  the  man  who  retains 
his  own  securities.  At  all  times  there  should  be  two  lists  kept  of  the  hold- 
ings, one  in  the  safe  deposit  box,  with  the  securities  and  the  other  should  be 
kept  in  the  personal  files  of  the  owner,  either  at  his  home  or  at  his  office. 
These  lists  should  show,  when  the  stock,  or  security  was  purchased,  from 
whom  it  was  received,  a  description  of  the  security  in  full,  with  the  number 
of  the  bond  or  certificate,  and  the  date  it  was  placed  in  the  vault. 

If  the  bank  or  broker  retains  the  security,  and  it  is  paid  for  and  in  the 
name  of  the  owner — or  the  custodian's  name — such  custodian  should  be 
asked  to  furnish  a  memorandum  monthly  showing  that  the  original  certificate 
or  bond  is  kept  in  a  private  parcel  separate  from  the  assets  of  the  firm  or 
bank.  A  guarantee  should  also  be  asked  to  show  that  the  members  of  the 
firm  or  a  responsible  officer  has  actually  checked  the  security,  looked  at  it 
and  can  vouch  for  it.  There  should  be  nothing  left  to  clerks  in  this  matter. 
Many  a  firm  has  failed  and  its  customers  have  later  found  out  that  their 
personal  property  had  been  used  to  bolster  up  the  firm's  credit. 

Get  a  Receipt  for  Protection 

If  the  broker  or  bank  should  ship  security  to  the  customer  the  sender 
is  responsible  for  its  safe  arrival  and  is  continuously  responsible  until  the 
owner  signs  a  receipt,  registered  mail,  express,  or  personal,  for  the  goods. 
If  security  has  been  sent  to  a  customer  and  it  is  apparently  lost,  the  best 
thing  for  the  customer  to  do  is  to  "sit  tight"  and  make  the  broker  trace  it. 
In  like  manner,  if  the  customer  sends  security  to  the  broker,  the  broker 
is  in  no  way  responsible  until  he  signs  for  possession. 

Suppose  the  security  is  lost  and  it  is  the  part  of  the  customer  to  trace 
it  and  find  it.  Assuredly,  quick  action  is  necessary,  but  usually  much  time 

35 


is  lost  because  of  lack  of  knowledge.  The  Fire  Commissioner  prints  a 
warning  to  theatre  goers  to  be  prepared.  "Look  around  for  the  exits  as 
soon  as  seated,  and  in  case  of  fire,  do  not  run  amuck,  but  go  quickly  and 
calmly  to  the  nearest  exit."  Very  few  stockholders  are  prepared. 

An  Authority's  Opinion 

To  quote  from  Smith's  Financial  Dictionary,  "A  coupon  bond  payable  to 
bearer  or  a  stock  certificate  assigned  in  blank  is  good  in  the  hands  of  an  inno- 
cent and  bona  fide  holder  who  acquires  it  by  honest  purchase  at  a  fair  market 
price  without  knowledge  that  it  was  fraudulently  obtained  by  any  previous 
holder  even  though  it  may  have  been  lost  by  or  stolen  from  its  owner. 

"The  recovery  of  a  lost  or  stolen  bond  or  stock  certificate  can  rarely  be 
accomplished  unless  it  is  found  in  the  hands  of  the  finder  or  of  the  thief  or  his 
accomplice  or  some  person  who  has  obtained  possession  of  it  by  fraud  or  under 
circumstances  which  will  convict  him  of  knowledge  or  suspicion  of  fraud  on 
the  part  of  the  one  from  whom  he  received  it. 

"The  fact  that  a  lost  or  stolen  bond  or  stock  certificate  has  been  advertised 
by  its  number  does  not  invalidate  the  title  of  an  innocent  holder,  as  it  cannot 
foe  held  that  the  purchaser  of  a  bond  or  a  stock  certificate  is  bound  to  have 
knowledge  of  the  advertisement. 

"A  registered  bond  is  without  coupons  (in  most  cases)  and  is  filled  in  with 
the  name  of  the  registered  owner  and  is  payable  to  him  or  his  assigns.  It  is  not 
available  to  any  other  person  until  properly  assigned  or  transferred  by  the  regis- 
tered owner.  If  a  registered  bond  (as  to  principal  and  interest)  or  a  stock  cer- 
tificate, not  assigned  in  blank,  is  lost  or  stolen  the  owner  can  secure  a  new 
bond  or  certificate  by  furnishing  a  bond  of  indemnity." 


LOST! 

New  York,'  May  24,  1917. 

100  SHARES  OrSTEEL,  Common, 
Henry  I.  Lee  No.  593306. 

10  INTERNATIONAL  NICKEL  VOT'G  TRUST  CTFS. 

Morgan&reist    No.  7537. 
40  INTERNATIONAL  NICKEL  VOT'G  TRUST  CTFS. 

i,  Shiran  &  Polk  No.  1749. 


If  found,  kindly  notify 

JONES  &  SMITH 

290  Wall  St,  New  York  Crty. 

Transfer  has  been  stopped,  and  all  parties  are 
cautioned  against  negotiating  the  same. 


Smith's  resume  of  the  situation  would  seem  to  infer  that  there  was 
little  chance  for  the  owner  of  a  lost  certificate  properly  assigned  to  recover, 
but  this  is  not  the  case  in  every  event,  for  if  transfer  is  stopped  and 
proper  procedure  taken,  the  innocent  holder  of  the  lost  certificate  can 
be  reimbursed  and  the  real  owner  get  a  new  certificate. 


36 


How  to  Ship  in  War  Time 

War  time  has  suggested  many  ways  of  insurance  for  certificates  and 
bonds  coming  from  abroad.  Until  the  United  States  went  to  war,  all  bonds 
coming  from  Germany  traveled  long,  roundabout  routes  and  the  coupons 
were  sent  separate  from  the  bonds  and  by  a  different  route  from  the  bond. 
Stock  certificates  were  sent  unassigned  and  separate  powers  of  attorney 
were  shipped  by  another  route.  There  are  thousands  of  dollars  worth  of 
American  bonds  in  this  country,  sent  from  Germany  in  the  early  days, 
which  have  never  met  with  the  original  coupons.  The  latter  were  lost  or 
confiscated.  Sometimes  the  coupons  arrived  but  not  the  bonds. 

What  Corporations  Require 

Each  corporation  has  its  own  special  requirements  to  act  upon  the  loss 
of  a  security  when  the  owner  desires  a  new  certificate  issued  in  its  place. 
In  case  of  loss,  the  very  first  thing  to  do  is  to  write  to  the  company  and  ask 
for  their  own  requirements.  State  the  case  fully  and  hide  no  minor  feature. 
The  following  steps  are  the  customary  ones  to  secure  a  duplicate  for  a  lost 
certificate : 

The  owner,  if  the  stock  is  in  his  name,  must  send  a  formal  notice  of  the 
loss,  stating  the  circumstances,  to  the  Treasurer  of  the  Corporation,  and  a 
duplicate  to  the  corporation's  transfer  office,  asking  the  officials  to  stop 
transfer. 

If  the  stock  is  not  in  the  owner's  name,  the  owner  must  get  the  co- 
operation of  the  registered  owner — the  name  in  which  the  lost  certificate 
stands — and  have  such  registered  owner  make  affidavit  of  the  circumstances, 
at  the  same  time  waiving  all  rights  of  ownership  to  the  real  owner.  This 
affidavit,  with  a  second  sworn  affidavit  of  all  the  circumstances  surrounding 
the  loss,  must  be  sent  to  the  officials  and  transfer  office  at  once. 

The  notice  of  the  loss  and  the  notice  of  transfer  having  been  stopped, 
must  be  sent  to  the  secretary  of  every  exchange  or  known  market  where 
trading  in  the  security  occurs. 

Advertisements  of  the  loss  must  be  inserted  in  three  or  more  issues  of 
the  most  prominent  financial  daily  newspapers  in  each  of  the  cities  where 
the  exchanges  are  located,  or  markets,  on  which  the  security  is  listed  or  dealt 
in.  The  copies  of  the  newspaper  containing  such  advertisements  are  to  be 
filed  with  the  company. 

Upon  all  requirements  as  above  having  been  fulfilled,  and  after  a  wait 
of  six  months  or  so,  the  company  will  advise  about  the  next  step. 

A  surety  bond,  perpetual  in  character,  amounting  to  twice  the  par  value 
of  the  lost  certificate,  the  form  to  be  approved  by  the  attorneys  of  the  com- 
pany, must  be  given  by  the  owner.  The  premium,  which  is  large,  must  be 
paid  by  the  loser.  In  case  the  stock  has  no  par  value,  the  amount  lies 
within  the  discretion  of  the  company's  advisors. 

When  all  these  requirements  have  been  fulfilled,  a  new  certificate  may 
be  issued  by  the  company  after  a  second  period  of  about  six  months. 

The  Loss  of  Bonds 

There  is  not  much  hope  for  the  loser  of  a  bearer,  coupon  bond  where 
the  ownership  is  not  definitely  shown.  Such  bonds  are  almost  as  negotiable 
as  a  twenty-dollar  gold  certificate.  The  advertising  of  the  number  with 

37 


the  hope  that  it  may  turn  up  in  some  broker's  office  is  about  the  best  that 
can  be  looked  for. 

Many  bonds  are  registered  as  to  principal  only  and  carry  bearer  coupons. 
This  is  a  very  convenient  method  of  protection  and  the  bonds  are  easily 
turned  back  to  regular  coupon  bearer  bonds  by  having  the  company  register 
them  to  "bearer"  just  before  sale. 

Some  Famous  Thefts 

Some  forty  years  ago  the  now  almost  forgotten  Austin  Bidwell  and 
his  clever  associates  built  up  a  remarkable  system  whereby  about  $5,000,000 
was  stolen  from  the  Bank  of  England.  Instead  of  using  actual  cash,  the 
forgers  purchased  U.  S.  Government  bonds  from  well-known  brokerage 
firms  in  England.  These  purchases  were  made  as  fast  as  the  forged  drafts 
and  bills  were  put  through  at  the  Bank  of  England  and  the  bonds  were 
shipped  in  trunks  to  confederates  in  the  United  States.  Even  if  the 
bonds  could  not  be  marketed,  they  could  be  used  for  collateral  with  which 
to  borrow  money,  and,  in  the  case  of  these  bonds,  the  borrowing  margin 
was  almost  at  the  bid  price.  Thus,  a  stolen  bond  might  not  appear  on  the 
market  for  years,  and,  in  the  meantime,  the  culprit  could  take  his  time 
about  getting  away  with  the  proceeds. 

A  few  years  ago,  a  clerk  in  a  well-known  trust  company  in  New  York 
City  got  access  to  the  stock  certificate  book  of  one  of  our  largest  corpora- 
tions and  made  out  certificates  to  his  own  and  friends'  names.  The  only 
forgery  necessary  was  the  names  of  the  officers  of  the  company,  the  trans- 
fer officer  and  the  officer  of  registration.  The  mistake  this  thief  made,  and 
they  all  make  some  mistake,  was  to  market  the  stock  by  actual  sale,  thus 
giving  an  opportunity  for  the  return  of  the  bogus  certificate  to  the  transfer 


abov»,  ....ic  to  use  the 

of  ?30,108.25.      -         .  .n.lersigncd    reserves   tnt> 
right,   to   reject    any   or   all    tenders. 
THE  NEW  YOBK  TRUST  COMPANY.  Trustee. 
By    H.    \V.    iiOilSE..   Secretary. 


New  York.   May   1st.   1917. 


Certificate  No.  1823.  for  three-fourths 
shares  of  the  capital  stock  of  Lehigh  Valley 
Coal  Sales  Co..  in-  name  of  Abe  Blum,  hav- 
Insr  been  lost  or  mislaid,  notice  is  hereby 
given  that  application  has  been  made  for,  a 
renewal  ol  the  same. 


Mo. 
Mold. 
N.  Y. 
Norf. 

>:.  y. 
Pentv 
St.  L* 
Seabot 
South* 


Newspaper  Notification  of  Reissuance  of  a  Lost  Certificate 

office  to  be  transferred  to  the  name  of  a  bona  fide  purchaser.  Had  the 
thief  negotiated  a  long-time  loan  on  these  certificates  with  some  bank,  keep- 
ing the  shares  in  his  name  but  assigned,  the  theft  would  have  been  covered 
up  for  possibly  years.  The  realization,  however,  would  have  been  on  only 
about  75  per  cent,  of  the  market  price  of  the  security. 

Every  precaution  must  be  taken  by  the  owner  of  stock  certificates  and 
bonds  to  safeguard.  The  legal  complications  and  red  tape  are  of  such  a 
serious  nature  that  too  much  care  is  impossible.  Registered  mail  or  express, 
fully  insured,  are  the  safest  methods  of  sending  securities  and,  in  the  case 
of  registered  bonds  and  unassigned  stock  certificates,  the  security  may  go 
in  one  mail  to  be  followed  by  the  detached  and  separate  assignment  in 
another  mail. 

If  you  own  securities  keep  a  safe  deposit  vault  and  a  real  record  of 
what  is  in  it. 

38 


What  Happens  When  Your  Broker  Gets  Your  Order? 

—Machinery  of  Purchase  and  Sale — 

What  You  Should  Know 

YOU  give  your  order  to  your  broker,  and  the  only  thought  which  comes 
to  your  mind  in  connection  with  it  is,  "At  what  price  will  it  be 
reported?"  If  it  is  a  market  order,  there  may  be  a  few  hundred  operations 
in  connection  with  it,  and  just  as  many  possibilities  for  errors.  If  it  is  a 
limited  order,  to  buy  or  sell  at  a  certain  price,  the  number  of  possible  opera- 
tions are  multiplied,  and  therefore  the  chance  for  error  is  increased.  In 
the  first  example,  we  will  follow  the  course  of  a  "market  order"  on  the  New 
York  Stock  Exchange.  Only  the  important  steps  will  be  taken  into  consid- 
eration. 

What  Happens  to  a  Market  Order? 

You  decide,  after  careful  deliberation,  to  purchase  100  shares  of  U.  S. 
Steel  common  at  the  best  obtainable  price.  The  first  step  is  your  verbal 
or  written  order  to  the  man  in  charge  of  the  customers.  He  again  writes 
out  on  a  little  slip  of  paper  with  the  word  "Buy"  printed  on  it,  "100  Steel." 
The  paper  is  passed  to  the  Order  Clerk,  who  notes  the  account  for  whom 
the  purchase  is  to  be  made,  and  at  once  passes  it  to  the  telephone  clerk  of 
the  order  department.  This  telephone  clerk  sends  the  message  over  the 
private  wire  without  the  slightest  delay  to  the  telephone  clerk  in  a  small 
booth  situated  at  the  west  end  of  the  floor  of  the  Stock  Exchange.  The 
exchange  telephone  clerk  notes  that  the  order  is  at  the  market.  He  writes 
it  down  on  a  "Buy"  slip  and  does  one  of  two  things.  If  the  firm's  Exchange 
member  is  not  busy,  he  presses  a  button  at  the  side  of  the  booth.  This  but- 
ton conveys  a  message  to  the  broker,  somewhere  on  the  floor,  by  causing 
a  number  to  appear  on  a  black  background  on  each  side  of  the  Exchange. 
No  matter  what  the  broker  is  doing,  or  where  he  may  be,  his  eye  is  trained 
to  see  that  number  flash  at  the  moment  it  shows  against  the  black  back- 
ground. That  number  belongs  to  him,  and  he  knows  it  as  well  as  the  old 
time  galley  slave  knew  his.  It  may  be  that  he  is  occupied  with  another  order 
at  the  time.  If  so,  he  calls  a  small  uniformed  messenger  boy  and  sends 
him  to  get  the  order.  These  boys  are  as  plentiful  as  brokers,  and  one  is 
always  at  hand. 

Either  the  boy  goes  for  and  brings  the  order,  or  else  the  broker  goes 
himself.  No  one  is  allowed  to  run  or  rush  on  the  floor  of  the  Exchange. 
A  fast  walk  is  all  that  is  permitted.  The  broker  receives  the  order,  folded, 
so  that  it  cannot  be  seen  by  any  one  else.  He  glances  carefully  at  it,  learns 
its  import  and  seeks  the  brokers  who  are  buying  and  selling  U.  S.  Steel 
com.  Every  stock  has  a  separate  section  for  its  individual  business.  Every 
broker  instinctively  knows  where  that  locality  is. 

The  Actual  Purchase 

U.  S.  Steel  com.  is  a  very  active  stock.  There  are  always  plenty  of 
brokers  buying  and  selling  and  the  market  is  a  good  one.  In  untech- 
nical  terms,  the  difference  between  the  bid  price  and  offered  price  is 
usually  the  minimum  difference  of  y$>.  The  first  duty  is  to  learn  the 

39 


real  market.  Usually  the  sellers  are  shouting  "100  (or  500)  at  an 
eighth."  If  the  offer  is  for  100,  the  minimum  trading  unit,  the  call  is  "At 
an  eighth."  This  means  that  the  seller  is  offering  his  shares  at  135 y%.  An 
indicator  at  the  post  nearby  has  the  last  sale  marked  on  it,  and  the  new- 
comer can  tell  the  round  figures,  so  that  the  seller  does  not  need  to 
shout  or  call  "500  at  135^."  The  fraction  preceded  by  the  word  "At" 
is  sufficient.  The  broker,  at  the  same  time  hears  buyers  call,  "Five  for 
a  hundred,"  or  "Five  for  500,"  as  the  case  may  be. 

If  there  are  more  than  100  shares  offered  at  y&,  the  broker  has  one 
of  two  options.  He  may  "stop"  his  proposed  purchase  at  Y%.  That  is 
to  say,  he  will  arrange  with  a  proposed  seller  to  sell  100  Steel  at  135^ 
if  100  or  more  shares  sell  at  that  price.  Having  done  this,  he  may  join 
the  other  would-be  purchasers  by  bidding  135  for  the  stock.  The  first 
broker  to  bid  a  price  has  "the  floor."  He  is  entitled  to  the  first  100 
shares  sold  at  that  price.  As  soon  as  a  sale  is  made,  bids  and  offers  are 
reopened.  If  two*  or  more  brokers  bid  the  same  price  at  the  same  time, 
and  100  shares  is  offered  at  this  bid  price,  it  is  customary  to  match  coins 
to  see  who  is  entitled  to  the  sale.  If  our  broker  is  able  to  purchase  his 
100  Steel  com.  at  135,  the  "stop"  at  135^  is  automatically  cancelled. 
But  it  is  not  cancelled  until  our  broker  actually  buys  his  stock  at  a  lower 
price  or  the  stock  is  purchased  at  the  "stopped"  price.  The  other  alter- 
native for  the  broker  is  for  him  to  buy  the  stock  at  once  at  the  offered 
price.  He  must  use  his  judgment  in  such  matters. 

How  It  Is  Reported 

As  soon  as  the  order  clerk  in  the  broker's  office  handed  the  order 
to  his  telephone  clerk,  the  former  made  an  entry  in  his  order  book.  This 
entry  remains  there  until  the  report  of  the  purchase  reaches  him.  He 
is  waiting  for  it,  and  if  there  is  a  delay,  he  must  telephone  to  learn  the 
cause.  After  our  broker  has  purchased  the  stock,  he  writes  on  a  report 
slip,  which  he  carries  in  his  hand,  the  following,  "Bot.  100  Steel  com. 
135^8  Bogert."  The  last  is  the  name  of  the  broker  from  whom  the  pu- 
chase  was  made.  He  either  sends  the  report  by  messenger  or  takes  it 
himself  to  the  telephone  clerk  at  the  Exchange  telephone  booth,  which 
his  firm  rents,  and  this  report  is  sent  back  over  the  private  wire  to  the 
telephone  clerk  at  the  office,  who  gives  a  written  report  to  the  chief 
order  clerk.  The  latter  notifies  the  customer's  man,  who  in  turn  notifies 
the  customer. 

A  copy  of  this  "filled"  order  is  sent  to  the  clerical  department.  It 
must  at  once  go  to  the  margin  clerk,  next  to  the  Purchase  and  Sales  De- 
partment, and  again  to  the  stenographer.  The  order  must  be  stamped 
with  the  date,  the  time  of  day  it  was  sent  and  filled,  and  a  copy  of  the 
report  made  out  for  the  customer.  The  clerks  enter  it  on  their  books 
and  make  a  comparison  of  the  transaction  with  the  office  of  the  seller, 
either  direct  or  through  the  Clearing  House.  The  bookkeeping  record 
features  are  part  of  another  story. 

The  Limited  Order 

Limited  orders  may  be  for  "the  day,"  "for  the  week"  or  "good  until 
cancelled  (countermanded)."  Each  form  tells  the  nature  of  the  time 
limit  by  its  title.  Suppose  the  order  was  to  purchase  100  Steel  com.  at 

40 


126.  At  the  time  the  order  reaches  the  Stock  Exchange  floor,  U.  S.  Steel 
com.  is  selling  at  135. 

The  telephone  clerk  can  use  his  judgment  in  doing:  one  of  two 
things.  He  may  call  his  floor  member  by  number,  if  he  knows  such 
member  is  not  busy  at  the  moment,  or  he  may  give  the  order  to  a  mes- 
senger to  take  to  the  "specialist."  The  floor  member,  upon  receipt  of 
the  order  may  not  desire  to  carry  this  order  about  with  him  waiting 
until  Steel  com.  sells  down  to  the  price,  and  he  may  give  the  order  to 
the  "specialist." 

What  is  the  specialist?  There  are  always  one  or  more  brokers  who 
do  no  business  except  in  the  stocks  located  at  one  "post"  or  locality. 
There  are  from  ten  to  twenty  stocks  dealt  in  at  each  post,  and  at  other 
sections  of  the  Stock  Exchange.  These  specialists  never  leave  this  one 
part  of  the  floor.  They  have  large,  but  convenient  order  books,  usually 
silica  slates,  on  which  to  enter  these  orders,  "away  from  the  market," 
and  to  erase  them  when  completed.  The  regular  charge  for  buying  or 
selling  100  shares  for  another  broker  is  $2  for  nearly  all  stocks.  The 
very  low  priced  shares  have  a  smaller  charge  in  accordance  with  the  rate 
charged  the  customer  by  his  broker.  The  "specialist,"  in  turn,  becomes 
the  broker  for  a  broker. 

The  specialist  may  have  many  hundreds  of  shares  to  buy  at  the 
same  price  for  many  different  firms  representing  still  a  larger  number 
of  customers.  He  shows  no  favorites,  and  should  not.  The  first  order 
at  a  price  for  Jones  is  filled  before  the  second  order  at  the  same  price  for 
Smith.  The  specialist  is  the  usual  holder  of  "stop-orders"  away  from 
the  immediate  market  price  and  his  order  book  can  tell  the  trading  posi- 
tion of  a  stock  better  than  any  other  kind  of  information. 

The  Odd  Lot  Order1" 

The  basis  of  trading  of  the  New  York  Stock  Exchange  is  100 
shares.  Anything  below  100  shares  is  an  odd  lot.  As  a  rule,  brokerage 
firms  dealing  for  individual  customers,  do  not  buy  or  sell  odd  lots  with 
each  other.  There  are  four  or  five  firms  which  make  a  specialty  of  this 
business.  They  do  not  have  the  outside  public,  individual  customers. 
Their  customers  are  all  the  other  brokerage  firms.  The  Stock  Ex- 
change member  for  a  customer's  firm  seldom  if  ever  sees  an  odd  lot 
order.  These  Odd  Lot  firms  usually  retain  a  large  number  of  mem- 
bers. The  members  are  scattered  about  the  different  parts  of  the  trad- 
ing room,  and  each  one  attends  to  the  business  covering  a  series  of 
stocks  most  convenient  to  him. 

The  telephone  clerk  receiving  an  odd  lot  order,  knows  with  which 
odd  lot  firm  his  employer  deals.  A  messenger  is  sent  with  the  order 
direct  from  the  telephone  booth  to  the  odd  lot  broker  specializing  in  the 
stock  for  which  the  order  calls.  The  odd  lot  broker  receives  the  order. 
If  it  is  a  market  order,  he  makes  out  a  report  at  Y%  or  %  above  the  last 
sale  if  a  purchase,  and  below  the  last  sale  if  the  stock  is  to  be  sold. 
Sometimes  he  waits  until  a  transaction  occurs  basing  the  price  on  "the 
next  transaction."  If  the  bid  and  asked  prices  are  far  apart,  and  the 
trading  in  the  stock  is  very  inactive,  he  sends  a  quotation  to  the  firm 
sending  the  order,  asking  the  customer  if  he  desires  to  wait  until  the 
next  sale,  or  if  he  wishes  the  price  to  be  based  on  a  previous  sale,  or  pos- 
sibly on  the  bid  and  offered  prices.  To  the  layman,  it  is  a  wonderful  mys- 

41 


tery  how  the  odd  lot  firms  ever  keep  track  of  their  trades.  An  ex- 
planation is  difficult,  but  the  principle  involved  is  that,  when  the  odd 
lot  dealer  buys  enough  odd  lots  of  stock  to  aggregate  100  shares,  he 
sells  that  100  shares  in  the  open  market.  He  pays  J^  to  l/4  less  than  the 
prevailing  price,  and  sells  at  l/%  to%  of  a  point  over  the  prevailing  price. 
He  must  watch  the  market  in  100  shares  closely  so  as  to  be  able  to  get 
his  profit  at  once.  Some  firms  maintain  a  speculative  position,  while 
others  try  to  even  up  as  rapidly  as  possible.  The  small  ^  or  %  of  a 
point  is  not  too  much  to  charge  for  the  risk  involved.  On  a  very  active 
day,  these  odd  lot  firms  are  filling  orders  from  their  offices  many  hours 
after  the  Exchange  is  closed.  The  risk  is  easily  apparent,  as  they  must 
take  every  order  offered  them. 

The  Bond  Orders 

One  section  of  the  New  York  Stock  Exchange  is  set  apart  for  deal- 
ing in  the  listed  bonds.  A  glance  over  the  official  bond  quotation  sheet 
of  the  Exchange  gives  the  novice  heart  failure  to  even  imagine  how  it 
is  possible  to  deal  in  so  many  issues.  The  average  member  of  the  Ex- 
change is  content  to  permit  the  specialists  in  bonds  to  do  their  own 
work.  He  knows  that  the  specialist  can  obtain  a  better  market  than  he 
can.  In  almost  every  case  all  orders  are  given  out  at  once  to  these  men 
who  make  bond  deals  their  special  business.  Except  when  the  order  is 
for  a  large  amount  in  a  bond  actively  dealt  in  and  at  the  market  very- 
few  brokers  have  the  temerity  to  attempt  to  fill  the  order  themselves. 

As  a  rule,  therefore,  the  order  in  bonds  goes  straight  to  the  bond 
dealer  without  the  firm's  floor  member  seeing  it.  The  report  is  sent 
by  the  bond  broker  when  the  order  is  filled,  by  messenger.  It  takes 
years  of  experience  to  be  a  specialist  in  this  department  and  the  busi- 
ness is  most  intricate. 

Orders  in  Curb  Stocks 

The  outside  market,  known  as  the  Curb  Market,  follows  the  plan 
of  the  big  exchanges.  There  is  a  special  locality  where  each  stock  is 
traded  in.  The  machinery  is  not  so  complete  and  there  is  no  indicator 
for  the  broker  to  glance  at  to  note  the  last  sale.  There  is  no  ticker  such 
as  one  might  watch  to  follow  prices  and  the  report  of  transactions  is  not 
nearly  so  accurate. 

Nearly  all  firms  maintain  representatives  on  the  Curb.  The  rep- 
resentatives may  not  be  associated  with  the  firms  except  in  so  far  as 
they  may  have  desk  room.  Each  curb  man  usually  has  a  telephone  lo- 
cated in  a  building  near  the  curb  market  and  a  clerk  to  receive  orders. 
The  transmission  of  orders  to  the  broker  is  either  by  signals  or  mes- 
senger. The  casual  sightseer  would  note  young  boys  making  all  kinds 
of  curious  motions  with  fingers,  eyes,  body  or  by  printed  signs,  from  win- 
dows overlooking  the  Broad  Street  Curb.  Messengers  are  running  back 
and  forth  in  much  the  same  manner  as  on  the  floor  of  the  Stock  Ex- 
change. The  same  system  as  to  entering  the  order  in  a  book,  stamping 
it  to  show  the  time  received,  day,  hour  and  minute,  is  used  as  for  orders 
on  the  New  York  Stock  Exchange.  The  Curb  Market  has  no  clearing 
house  and  each  transaction  must  be  compared  between  the  clerks  of 
buyer  and  seller.  The  machinery  is  more  cumbersome.  Odd  lots  may 
be  bought  and  sold  between  brokers  the  same  as  100  shares,  but  on  the 
Curb  there  are  specialists  in  each  stock  the  same  as  on  the  exchanges. 

42 


Unlisted  and  Over  the  Counter  Stocks 

There  are  hundreds  and  even  thousands  of  different  securities  which 
do  not  have  a  regular  market.  This  class  is  also  usually  high  grade  and 
the  business  is  growing  more  rapidly  each  day.  Many  firms  and  hun- 
dreds of  individuals  make  a  specialty  of  certain  classes  of  stocks.  Some 
firms  deal  in  oil  stocks,  others  in  steel  stocks,  some  in  bank  and  trust 
company  stocks,  and  there  are  also  specialists  in  insurance  and  muni- 
tion stocks.  Other  firms  deal  entirely  in  bond  issues  which  are  not 
listed  on  any  exchange  or  Curb  Market. 

The  various  firms  handling  the  accounts  of  customers  know  these 
"outside"  specialists.  When  orders  are  received  from  customers  in  such 
securities,  the  transactions  are  made  direct  over  the  telephone.  If  there 
are  two  or  more  firms  specializing  in  the  same  class  of  security  as  called 
for  in  the  order,  each  one  is  called  and  the  bid  and  asked  quotations  are 
listed.  The  best  bid  gets  the  sale  and  the  best  offer  brings  about  the 
purchase.  In  this  case  the  telephone  does  all  the  work. 

The  Enormity  of  Detail 

Each  order  is  individual.  The  many  details  in  connection  with  the 
fulfilling  of  the  order  and  the  following  of  it  to  the  completion  of  its 
course  involves  the  entire  history  and  study  of  brokerage  business,  in- 
cluding the  accounting  feature.  The  outline  given  in  the  preceding  para- 
graphs may  be  of  use  to  the  customer  in  at  least  making  him  understand 
the  complexity  of  detail  and  the  possibility  of  delay  and  error.  Even  the 
smallest  order  passes  through  so  many  operations  and  in  such  a  short 
time  that  the  insurance  of  accurate  completion  demands  a  large  pre- 
mium. The  premium  for  this  accuracy  is  only  the  commission.  It  is 
possible  for  a  small  brokerage  firm  to  earn  five  thousand  dollars  in  com- 
missions in  one  month  and  lose  it  all  in  ten  minutes  through  an  error 
of  either  clerk  or  broker. 

A  Few  Things  for  the  Customer  to  Remember 

The  order  departments  in  this  country,  with  reference  to  brokerage, 
far  surpasses  the  English  or  Continental  service.  The  time  taken  to  fill 
an  order  is  the  shortest  of  any  other  business  known. 

Do  not  expect  to  purchase  100  shares  of  U.  S.  Steel  com.  at  135  when 
500  other  people  want  Steel  at  that  price  and  only  one  small  transaction 
occurs  at  135. 

Do  not  complain  about  an  Odd  Lot  order,  if  you  send  in  to  buy  10 
Nat.  Biscuit  at  the  market,  the  last  and  lowest  sale  being  105,  and  your 
report  reads  104^4.  You  should  have  either  asked  for  a  quotation  or 
specified  that  your  purchase  was  to  be  based  on  "the  next  sale." 

Do  not  tell  your  broker  to  use  his  judgment.  Take  your  own  re- 
sponsibility and  tell  him  what  to  do,  or  what  you  wish  to  do.  Be  care- 
ful to  mark  your  order  either  "Buy"  or  "Sell"  and  state  how  long  it  is 
to  be  effective  before  you  desire  its  cancellation. 

Be  certain  to  give  one  order  at  a  time.  Also  be  careful  to  cancel 
an  order  if  you  supplement  it  with  any  change. 

Try  not  to  make  one  order  contingent  on  another.  Avoid  all  pos- 
sible ambiguity.  Ambiguity  means  loss  to  you  and  the  broker. 

Be  certain  to  have  a  complete  understanding  about  the  price  of  an 
order  when  the  stock  in  question  sells  ex-dividend  or  ex-rights. 

Write  your  orders  and  see  that  they  are  confirmed. 

43 


Transfer  Taxes 


Conditions  of  Double  Taxation  Affecting  Buyers  or  Sellers  of  Stock 

IT  very  often  happens  that  the  customers  of  a  brokerage  firm  are  charged 
with  an  extra  tax  to  transfer  stock.  In  almost  all  cases  where  this 
charge  appears,  the  client  feels  that  he  has  been  unjustly  charged.  He 
knows  that  the  seller  has  paid  one  tax  and  he  can  conceive  of  no  con- 
dition where  it  might  be  necessary  for  him  to  supplement  this  with  a 
second.  In  like  manner  there  are  instances  where  the  seller  is  charged 
with  a  double  tax  on  his  sale.  This  is  also  an  enigma  to  the  customer, 
who  has  visions  that  his  broker  is  either  careless  or  is  extracting  a  little 
profit  from  him.  It  is  the  purpose  in  this  article  to  describe  certain  situ- 
ations where  this  double  charge  is  necessary. 

A  Transfer  is  a  Sale 

The  broker's  client  must  first  of  all  realize  certain  facts.  In  the  first 
place  the  State  laws  assume  that  every  transfer  of  stock  constitutes  a 
sale.  This  may  not  be  the  actual  case,  but  no  affidavit  can  make  the 
government  change  its  mind.  In  the  second  place,  there  exists  no 
broker  who  desires  to  pay  his  double  tax  and  go  into  detailed  informa- 
tion to  his  customer.  In  the  third  place,  the  laws  of  the  various  stock 
exchanges  prohibit  the  broker  from  assuming  this  extra  charge  unless 
the  said  broker  is  actually  at  fault.  The  above  facts  therefore  are  suffi- 
cient evidence  in  themselves  that  the  broker  has  every  reason  to  evade 
this  extra  charge  if  it  is  possible. 

There  are  three  systems  of  taxation  which  affect  the  buyer  or  seller 
of  stocks.  Each  system  is  based  on  the  same  scale  and,  in  each  case,  a 
revenue  stamp  is  used  on  the  sales  ticket.  There  are:  the  New  York 
State  tax ;  the  Massachusetts  State  tax ;  and  the  Pennsylvania  State  tax. 
This  tax  is  based  on  the  par  value  of  the  stock  and  is  determined  at  the 
rate  of  two  cents  a  share,  or  fraction  of  a  share,  of  the  par  value  of  $100. 
Tf  the  stock  is  of  no  par  value  all  the  State  taxes  class  No  Par  as  though 
it  were  $100.  It  may  be  that  a  stock  demands  three  sets  of  stamps.  Un- 
til a  definite  ruling  can  be  made  Baldwin  Locomotive,  when  transferred, 
requires  New  York  State  and  Pennsylvania  State  stamps.  Stocks  of  the 
Pennsylvania  Railroad  do  not  require  Pennsylvania  stamps.  Every  cor- 
poration interprets  the  laws  after  its  own  fashion,  as  is  the  case  with 
respect  to  legal  documents.  The  seller  always  pays  the  tax. 

Examples  of  Double  Tax 

The  following  hypothetical  situations  are  instances  when  the  cus- 
tomer should  be  charged  with  the  double  tax  for  purchase,  sale  or  trans- 
fer. In  the  cases  to  follow,  the  broker  would  be  transgressing  the  laws 
of  his  exchange  if  he  assumed  the  tax,  charging  it  to  any  of  his  firm's 
accounts : 

1 — Delay  In  Giving  the  Broker  a  Name  for  Transfer 

The  customer  must  realize  that,  technically,  the  law  demands  that 
the  same  set  of  stamps  used  to  effect  the  sale  of  a  security  must  be  ap- 
plied to  the  particular  stock  involved.  However,  this  rule  is  impossible 

44 


and  the  best  the  broker  and  transfer  companies  can  do  is  to  match  the 
stamps  and  security  as  closely  as  possible.  For  example,  if  a  security 
is  released  from  the  transfer  office  on  May  26,  it  is  manifestly  impossible 
to  use  stamps  to  transfer  it  again  dated  May  8.  Brown  puts  in  an  order 
to  buy  20  shares  of  U.  S.  Rubber  common  at  the  market  on  May  7,  1916. 
The  stock  is  purchased  from  the  Odd  Lot  broker  the  same  day  and  is 
deliverable  by  the  Odd  Lot  broker  the  following  day,  May  8,  1916.  The 
Odd  Lot  broker  cancels  his  stamps  as  of  May  8,  1916,  but  he  insists  that 
Brown's  broker  accept  the  stocks  by  transfer.  Under  the  present  sys- 
tem of  doing  business  the  Odd  Lot  brokers  practically  force  the  commis- 
sion house  to  accept,  not  the  actual  certificate,  but  a  new  certificate  di- 
rect from  the  transfer  office.  If  Brown  intends  to  pay  for  the  stock  and 
pays  for  it  on  May  7,  1916,  telling  his  broker  that  he  wishes  to  have  the 
certificate  transferred  to  his  name,  the  broker  gives  Brown's  name  to 
the  Odd  Lot  Firm  and  there  is  an  end  to  the  transaction.  If  Brown  neg- 
lects to  tell  his  broker  of  the  disposition  of  the  stock  on  May  7,  or  pay 
for  it,  until  late  on  May  8,  1916,  or  a  later  date,  the  broker  gives  the  Odd 
Lot  firm  his,  the  broker's  name,  and  the  original  sales  stamps  are  used 
to  transfer  the  stock. 

On  May  9,  1916,  Brown  decides  to  have  the  stock  transferred  to 
his  own  name,  paying  for  it.  The  stock  is  now  in  his  broker's  name  and 
the  sales  revenue  stamps  are  used.  To  effect  the  transfer  to  Brown's 
name,  a  new  set  of  stamps  must  be  attached  to  the  stock,  and  it  is 
Brown's  fault  that  such  a  course  is  necessary.  Therefore,  Brown  is 
charged  with  the  cost  of  the  stamps  necessary  to  make  the  transfer  to 
his  name.  The  State  classes  a  transfer  on  the  books  of  the  company  as 
a  sale,  whether  such  transfer  is  in  reality  a  sale  or  in  fact  is  not  a  sale. 

2 — The  Sale  of  Securities  Which  Are  Not  a  Good  Delivery 

All  exchanges,  including  the  "curb"  have  rules  regarding  the  "nego- 
tiability" or  delivery  of  securities.  These  rules  are  on  file  in  any  broker's 
office  and  depend  upon  many  conditions.  For  the  purpose  of  our  exam- 
ple, a  well-known  rule  will  be  used.  A  certificate  of  stock  accompanied 
by  a  detached  power-of-attorney  is  not  acceptable  to  the  buyer.  Brown 
presents  his  20  shares  of  U.  S.  Rubber  common  with  such  a  detached 
power.  In  other  words  the  stock  certificate  is  not  released  by  Brown 
on  the  back  of  the  certificate,  but  Brown  has  signed  a  separate  piece  of 
paper  embodying  such  a  power.  Sales  stamps  are  charged  to  Brown  for 
the  actual  sale,  but  before  the  certificate  can  be  delivered  it  must  be 
transferred  to  a  name  which  can  be  endorsed  to  the  blank  power  on  the 
back  of  the  certificate.  It  is  a  possible  chance  that  the  buyer  will  give 
his  own  name,  as  in  the  case  mentioned  previous,  but  the  buyer  from  the 
broker  is  not  compelled  to  give  his  name,  so  that  the  broker  may  have  to 
first  transfer  the  certificate  to  his  own  name.  Brown  is  again  respon- 
sible and  the  charge,  if  necessary,  must  accrue  to  him. 

3 — Delayed  Delivery  by  Seller  on  Stock  Sold  Regular  Way 

Brown  sells  100  U.  S.  Rubber  common  through  his  broker,  regular 
way. 

"Regular  way"  means  that  the  actual  certificate  of  stock  must  be 
delivered  before  2:15  p.  m.  to  the  seller  the  following  day.  Brown  is  in 
St.  Louis  and  the  certificate  of  stock  is  in  his  safe  deposit  vault  in  New 

45 


York  City.  It  is  manifestly  impossible  for  the  broker  to  get  his  certifi- 
cate in  time  for  delivery,  so  he  borrows  100  shares  from  the  margin  ac- 
count of  one  of  his  other  customers  and  makes  the  delivery.  Later,  the 
customer  from  whom  he  borrowed  the  stock  desires  to  pay  for  it,  having 
it  transferred  to  his  name.  The  broker  must  use  Brown's  certificate,  but 
he  finds  that  the  date  of  transfer  release  on  Brown's  certificate  is  a  later 
date  than  that  on  the  sales  ticket  which  accompanied  the  other  custom- 
er's purchase.  It  is  without  doubt  proper  for  Brown  to  pay  the  tax  for 
the  other  customer's  transfer. 

There  are  many  variations  of  this  phase  of  transfer  charge.  There 
may  be  no  charge  if  the  broker  must  borrow  the  stock  from  another 
broker,  the  lender  not  demanding  the  stamps  on  its  return,  and  it  may 
be  that  Brown's  certificate  will  match  up,  as  to  date,  with  the  original 
stamps  on  the  other  customer's  purchase.  This  is  simply  a  matter  of 
chance.  Again,  no  buyer  is  compelled  to  accept  a  certificate  larger  than 
100  shares.  If  Brown  sold  7,000  shares  and  presented  one  certificate,  it 
would  have  to  be  split  into  one  hundred  share  lots  by  the  transfer  office 
— there  would  be  no  charge  if  it  was  returned  in  Brown's  name  from  the 
transfer  office — but  the  original  stamps  were  used  to  deliver  other  stock 
on  Brown's  sale,  if  he  delayed  presenting  the  stock  until  the  day  of  de- 
livery, and  Brown  must  be  responsible  for  future  stamps  necessary  on 
the  new  70  certificates  returned. 

It  is  the  duty  of  the  broker  to  protect  his  customer  on  all  dividends 
accruing  on  stock  held  for  said  customer.  The  various  companies  recognize 
ownership  as  only  those  whose  names  are  on  the  books  as  owners  of  the 
stock.  If  the  holder  of  stock  does  not  have  it  in  his  name  the  day  the  stock 
sells  ex-dividend,  he  will  have  to  collect  the  dividend  from  the  man  or  firm 
in  whose  name  the  stock  stands  on  the  books  of  the  company.  Unless  such 
registered  holder  is  accessible  and  willing  to  part  with  the  dividend,  there 
is  a  possibility  of  never  collecting  by  the  rightful  owner.  Even  when  col- 
lected, the  registered  owner  usually  charges  at  least  one  per  cent,  for  his 
trouble. 

Brown  holds  100  shares  of  U.  S.  Steel  Pfd.  in  a  margin  account.  To 
protect  him,  on  April  29,  the  day  the  stock  sells  ex-dividend,  his  broker 
transfers  the  100  shares  to  his,  the  broker's  name.  This  insures  the  divi- 
dend coming  to  the  broker  to  be  placed  to  Brown's  credit.  On  May  14 
Brown  decides  to  pay  for  the  stock  and  have  it  transferred  to  his  own  name. 
The  original  sale  stamps  have  been  used  to  protect  the  dividend  for  Brown 
so  that  Brown  must  be  charged  with  another  set  of  stamps  to  get  the  stock 
in  his  own  name. 

5— Reorganizations  and  Protective  Committees 

It  is  certainly  often  difficult  for  the  broker  to  explain  to  Brown  just 
why  he  is  charged  a  double  tax  on  reorganizations  and  for  depositing  stock 
with  protective  committees.  But  this  charge  is  very  necessary  and  a  very 
legitimate  one.  Brown  owned  100  shares  of  the  stock  of  the  International 
Mercantile  Marine  Pfd.  If  the  stock  was  not  in  his  name  and  he  desired 
to  place  it  under  the  protection  of  the  Wallace  Committee,  he  had  to  pay 
double  tax,  or  four  dollars.  The  reason  for  this  is  that  the  original  stock 
had  to  be  transferred  to  the  Committee.  This  was  one  tax.  Then,  a  certifi- 
cate of  the  committee  was  issued  to  Brown.  This  was  a  second  tax.  If  the 
broker  had  held  Brown's  stock  and  had  the  original  sales  ticket  to  present 

46 


for  the  first  transfer,  Brown  would  then  have  been  charged  with  only  one 
tax. 

Broker  and  Client 

The  relation  between  the  broker  and  client  with  reference  to  these  tax 
matters  is  always  more  or  less  strained.  The  broker  is  appointed  an  agent  by 
the  State  Governments  and  he  has  no  other  alternative  than  to  obey  the  laws. 
Inspectors  examine  his  books  at  various  undeterminate  periods  and  the 
broker  must  be  more  than  careful.  The  imposition  of  these  various  taxes 
has  doubled  his  clerical  force  and  clogged  the  machinery  of  clerical  work. 
On  the  other  side,  the  various  exchanges  have  stringent  laws  relating  to 
commissions.  The  assuming  of  any  legitimate  tax  by  the  broker,  is  classed 
as  splitting  commissions,  for  which  act  the  broker  is  liable  to  suspension  or 
expulsion.  The  only  time  a  broker  is  permitted  to  pay  a  tax  is  when  he  can 
prove  that  such  a  tax  is  on  account  of  an  error  on  his  part,  or  on  the  part 
of  his  clerks. 

The  Customer's  Duty 

On  the  other  hand,  it  is  the  customer's  duty  to  find  out  why  charge  is 
made  against  him.  The  broker  can  always  give  the  reason,  and  where  the 
reason  is  one  of  the  foregoing  or  an  indirect  result  of  one  of  the  foregoing, 
the  customer  must  be  charged  with  the  tax. 


47 


General  Regulations  Covering  the  Transfer  of 
Stocks  and  Bonds 

I.  Registration 

1.  In  transferring  stock  or  bonds  to  the  name  of  an  Individual  or  Firm, 
the  full  name  should  be  given  as  it  is  usually  signed,  without  prefix,  suffix, 
or  title. 

2.  When  a  transfer  is  made  to  the  name  of  a  Woman,  the  prefix  Miss 
or  Mrs.  should  be  given,  and  the  security  registered  in  her  individual  name, 
Thus,  Mrs.  Jane  Doe  and  not  Mrs.  John  Doe. 

3.  The  titles  of  Corporations  or  Associations  should  be  stated  in  full, 
including  the  prefix  The  when  applicable. 

4.  The  name  of  a  Trustee  or  Trustees  should  be  followed  by  a  brief 
description  of  the  trust. 

5.  The  name  of  an  Executor  or  Administrator  should  be  followed  by 
a  brief  description  of  the  will  or  estate. 

6.  Transfers  to  the  Estate  of  John  Doe  are  usually  impossible.    Richard 
Roe,  Executor  (or  Administrator)  of  the  Estate  of  John  Doe,  is  preferable. 

7.  Usually  Executors,  Administrators  or  Trustees  can  not  transfer  to 
themselves  as  individuals.     If  necessarily  done,  the  reason  and  justification 
therefor  should  be  shown  by  a  court  order  or  otherwise.     The  best  way  is 
to  transfer  to  a  third  party  and  retransfer  to  name  desired. 

8.  In  all  cases  the  addresses  of  transferees  should  be  stated  with  par- 
ticularity. 

9.  Persons  or  associations  having  securities  transferred  to  themselves 
from  time  to  time  are  requested  to  state  the  name  uniformly,  in  order  to 
avoid  the  opening  of  unnecessary  accounts  and  the  confusion  and  incon- 
venience consequent  thereon. 

If  John  Doe  be  a  registered  holder,  the  name  should  not  be  given  as 
Jno.  Doe  or  /.  Doe  at  the  time  of  subsequent  transfers ;  and  the  name 
Richard  Roe  &  Co.,  should  not  afterwards  be  stated  as  Richard  Roe  & 
Company  or  R.  Roe  &  Co. 

II.  Assignment 

1.  The  assignment  on  the  reverse  side  of  a  certificate  or  bond,  must 
be  signed,  witnessed  and  dated.     The  name  of  the  person  constituted  as 
attorney  to  make  the  transfer  upon  the  books  of  the  Company,  should  be 
omitted. 

2.  Signatures  to  such  assignments  must  be  technically  correct;  that  is, 
they   must   correspond   in    every  particular  with   the   name   in   which   the 
security  is  issued,  without  abbreviation,  enlargement  or  change. 

(a)  The  assignment  of  a  certificate  or  bond  registered  in  the  name  of 
John  Henry  Smith,  must  not  be  executed  in  the  name  of  John 
H.  Smith,  J.  Henry  Smith,  or  J.  H.  Smith.  If,  however,  a 
certificate  in  the  name  of  John  Henry  Smith  has  been  signed 
"J.  H.  Smith,"  the  incorrect  signature  should  not  be  erased, 
but  the  proper  signature  "Jonn  Henry  Smith"  should  be  signed 

48 


either  directly  above  or  below  the  incorrect  signature  and  each 
should  be  witnessed. 

(b)  Titles,  if  any  must  be  prefixed  or  suffixed  to  signatures,  exactly 

as  they  appear  on  the  face  of  the  security.  If  the  prefix  Miss, 
Mrs.,  Rev.,  Dr.,  Capt.,  Baron,  etc.,  constitutes  a  part  of  the 
name  of  the  holder  as  registered,  the  signature  must  include 
such  prefix. 

(c)  Brothers  or  Bros,  must  be  written  as  it  appears  in  the  security. 

3.  When  a  security  has  been  issued  in  a  name  incorrectly  stated  or 
wrongly  spelled,  the  assignment  must  be   executed  both  in  the  name  as 
registered  and  in  the  correct  name. 

4.  The  assignment  of  a  security  registered  in  the  name  of  John  Doe 
and  Richard  Roe  must  be  executed  by  both. 

5.  The  assignment  of  a  security  registered  in  the  name  of  a  woman 
subsequently  changed  by  marriage,  must  be  executed  Jane  Doe,  now  Jane 
Roe.     Evidence  of  the  marriage  and  of  the  holder's  identity,  may  be  re- 
quired. 

6.  A  detached  assignment  must  contain  provision  for  the  appointment 
irrevocable  of  a  person  (the  name  being  left  blank)  as  attorney  to  make  the 
necessary  transfer  upon  the  books  of  the  Company,  and  a  full  description 
of  the  security ;  that  is,  name  of  the  Company,  Issue,  Certificate  or  Bond 
Number,  and  the  face  amount. 

(a)  A  separate  assignment  should  accompany  each  certificate  or  bond. 

7.  Any  alteration  in  the  wording  of  an  assignment  or  appointment  of 
an  attorney  should,  whenever  practicable,  be  attested  by  the  signature  of 
every  person  joining  in  the  execution  of  the  assignment  as  the  assignor  or 
as  one  of  the  assignors ;  and  must  in  any  event  be  attested  by  that  of  a 
person  or  persons  thereunto  authorized. 


III.     Assignments  by  Corporations  or  Associations 

1.  When  a  transfer  is  to  be  made  from  the  name  of  a  Corporation  or 
Association,  the  certificate  or  bond  must  (subject  to  paragraph  2  below)  be 
accompanied  by  a  copy  of  a  resolution  of  the  board  of  directors  or  trustees, 
authorizing  its  transfer  and  naming  the  officer  delegated  to  execute  the 
assignment. 

(a)  This  copy  must  be  certified  by  the  secretary  of  the  Corporation 
as  a  true  copy  from  the  minutes. 

(b)  If  such  a  resolution  is  of  a  continuing  effect,  the  secretary  of  the 
Corporation  must  certify  that  the  resolution  is  in  effect  at  the  time  of  the 
intended  transfer. 

2.  If  a  transfer  is  to  be  made  on  the  authority  of  a  by-law,  the  security 
must  be  accompanied  by  a  copy  of  the  by-law,  certified  by  the  secretary  of 
the  Corporation  as  being  in  effect  at  the  time  of  such  intended  transfer. 

3.  The  corporate  seal   (if  the  Corporation  or  Association  have  one) 
must  be  impressed  upon  the  assignment,  whether  on  the  security  itself  or 
detached,  and  likewise  upon  all  attestations. 

(a)   If  a  Corporation  or  Association  have  no  seal,  attestations  must 
be  acknowledged  before  a  Notary  Public. 

49 


IV.    Assignments  by  Trustees 

1.  When  a  certificate  or  bond  is  to  be  transferred  from  the  name  of  a 
Trustee  or  Trustees,  a  certified  copy  of  the  instrument  creating  the  trust 
must  be  submitted. 

2.  Evidence  is  required  of  the  appointment  of  a  Trustee  or  Trustees, 
(if  other  than  as  stated  in  the  creating  instrument)  ;  of  his  or  their  ac- 
ceptance of  the  trust,  and  retention  of  it  at  the  time  of  the  intended  transfer. 

3.  Assignments  by  trustees  require  the  signature  of  all  living  Trustees. 
The  signature  of  one  alone  is  not  sufficient  to  justify  a  transfer  of  stock  or 
bonds.     (See  Section  V,  paragraph  4.) 

(a)  The  decease  of  a  former  co-trustee  should  be  proved  by  a  certifi- 
cate of  death  when  obtainable,  or  otherwise  by  credible  affidavit,  as  a  con- 
dition precedent  to  transfer. 

V.     Assignments  by  Executors  and  Administrators 

1.  A  certificate  or  bond  offered  for  transfer  from  the  estate  of  de- 
cedent intestate,  must  be  accompanied  by  a  certificate  of  the  granting  of 
Letters  of  Administration,  and  evidence  of  the  retention  of  the  trust  by  the 
Administrator  or  Administrators  at  the  time  of  the  intended  transfer. 

2.  A  security  offered  for  transfer  from  the  estate  of  a  decedent  testate, 
must  be  accompanied  by  the  following : — 

(a)  A  certified  copy  of  the  Last  Will  and  Testament  of  the  deceased 

(b)  A  certificate  of  the  appointment  of  an  Executor  or  Executors,  and 
evidence  of  his  or  their  retention  of  the  trust  at  the  time  of  the  intended 
transfer. 

3.  Presumptively,  it  is  within  the  power  of  executors,  or  either  of 
several  executors  alone,  to  sell  and  transfer  the  assets  of  a  decedent.     A 
will  may,  however,  require  joint  action  of  all  the  executors. 

4.  If  an  assignment  is  proposed  by  executors  more  than  eighteen  months 
after  the  decedent's  decease,  a  presumption  arises  that  the  executors  have 
become  Trustees  and  must  be  so  treated. 

5.  Evidence  must  be  furnished  of  the  payment  of  any  inheritance  or 
succession  tax  imposed  by  the  laws  of  the  States  interested,  or  in  lieu 
thereof,  a  waiver  of  notice  issued  by  the  Comptroller,  Auditor,  or  other 
proper  officer  of  such  States. 

(a)  If  the  decedent  was  not  a  resident  of  the  State  of  New  York,  and 
died  subsequently  to  July  21,  1911,  a  waiver  by  the  Comptroller  of  that 
State  will  issue  of  right,  upon  application  therefor  with  a  proper  present- 
ment of  the  facts. 

VI.     Charges  for  Registration  and  Transfer 

1.  When  a  certificate  of  stock  is  surrendered  and  a  greater  number  of 
certificates  is  issued  in  the  same  name,  or  in  any  one  name,  for  a  like  aggre- 
gate number  of  shares,  a  charge  of  25  cents  each  is  usually  made  for  the 
additional  certificates.     There  is  usually  no  other  charge  for  the  transfer 
of  stock. 

2.  No  charge  is  made  for  the  registration  of  bonds,  nor  for  the  transfer 
of  registered  bonds.     A  charge  of  $1.00  per  bond  is  generally  made  to 
cover  the  actual  cost  of  restoring  registered  bonds  to  coupon  form,  when 
such  restoration  is  provided  for  by  the  mortgage  securing  such  bonds. 

50 


VII.     Taxes  on  Registration  and  Transfer 

1.  The  State  transfer  tax  on  stock  of  any  Company  transferred  within 
the  States  of  New  York,  Massachusetts  and  Pennsylvania  amounts  to  2 
cents  per  $100  of  par  value  or  fraction  thereof.    The  duty  to  require  pay- 
ment in  advance  of  making  a  transfer,  is  imposed  upon  the  Companies  by 
law. 

2.  There  is  now  no  tax  on  the  registration  or  transfer  of  bonds.     (See 
Section  V,  paragraph  5,  as  to  inheritance  taxes  on  decedents'  estates.) 

VIII.     Transfers  In  Error 

1.  In  case  a  name  has  been  filled  in  for  transfer  in  error,  some  com- 
panies will  allow  the  name  to  be  erased  if  the  erasure  is  guaranteed  by  a 
Stock  Exchange  member  of  firm,  and  will  correct  if  guaranteed  against 
loss  by  a  Stock  Exchange  member  or  firm.  Other  companies  furnish  forms 
of  their  own  to  be  filled  out,  while  the  Penna.  R.  R.  Co.  and  a  few  others 
require  a  detached  power  of  attorney,  signed  by  the  original  stock  holder 
before  making  correction. 


Lost  Certificates 

Although  the  requirements  of  different  companies  show  great  varia- 
tions, yet  the  following  are  the  general  requirements  to  secure  a  duplicate 
for  a  lost  or  destroyed  certificate: 

(1)  A  formal  notice  of  the  loss,  with  request  to  stop  transfer. 

(2)  An  affidavit,  signed  by  the  registered  stockholder,  stating  as  fully 
as  possible,  particulars  of  the  loss. 

(3)  Notice  of  loss  must  be  sent  to  the  Secretary  of  every  Exchange 
upon  which  the  security  is  traded. 

(4)  An  advertisement  of  the  loss  must  be  inserted  in  three  or  more 
issues  of  a  prominent  daily  newspaper,  in  each  city  where  such  Exchanges 
are  located.    Copies  of  such  newspapers,  advertisements  included,  must  be 
filed  with  the  company. 

(5)  A  surety  bond  in  twice  the  par  value  of  the  lost  certificate,  the 
form  of  which  is  to  be  approved  by  the  company,  must  be  given  by  the 
owner   of   the  lost  certificate. 

(6)  Where  all  above  requirements  have  been   fulfilled  and   consent 
has  been  received  by  the  company  from  the  Exchanges  interested,  a  dupli- 
cate certificate  will  usually  be  issued  after  a  period  of  about  six  months 
from  the  date  of  the  loss. 


New  Jersey  Regulations 

The  State  of  New  Jersey,  Department  of  the  Comptroller  of  the  Treasury, 
Trenton,  N.  J.,  issues  the  following  circular  regarding  requirements  Respecting 
the  Transfer  of  Shares  of  New  Jersey  Corporations  owned  by  Estates  of  Non- 
Resident  Decedents: 

A  strict  compliance  with  these  requirements  will  materially  assist  in  facil- 
itating transfers. 

When  the  entire  estate  goes  to  exempt  heirs  to  wit:  father,  mother,  hus- 
band, wife,  child  or  children  or  lineal  descendant,  born  in  lawful  wedlock, 
brother  or  sister,  wife  or  widow  of  a  son  or  husband  of  a  daughter,  churches, 

51 


hospitals  and  orphan  asylums,  public  libraries,  Bible  and  tract  societies,  re- 
ligious, benevolent  and  charitable  institutions  and  organizations  (within  this 
State  by  location  or  incorporation),  waiver  will  be  issued.  This  fact  must  be 
established  by  filing  with  this  Department — 

If  the  estate  is  disposed  of  by  will  by  a  copy  of  the  will,  certified  by  the 
proper  legal  authority,  including  the  certificate  of  the  executor's  appointment, 
and  an  affidavit  made  by  executor,  certifying  names  of  beneficiaries  mentioned 
in  the  will  who  survived  the  testator,  and  how  they  were  related  to  testator. 
If  the  estate  is  not  disposed  of  by  will,  by  the  affidavit  of  the  administrator, 
giving  date  of  death  of  decedent,  place  of  residence  at  that  time,  names  of  bene- 
ficiaries, how  they  were  related  to  decedent,  and  what  portion  of  estate  each 
will  receive,  and  the  certificate  of  administrator's  appointment. 

When  any  portion  of  the  estate  goes  to  other  than  exempt  heirs,  as  above 
recited.  Upon  the  payment  of  the  tax  due  this  State,  a  receipt  therefor  and  a 
certificate  thereof  will  be  issued. 

The  deposit  with  the  transferring  corporation  of  the  waiver  or  certificate 
above  provided  will  constitute  sufficient  authority  for  the  transfer  of  the  shares 
stated  therein,  as  contemplated  by  the  law. 

To  determine  the  amount  of  tax  due  this  State,  it  is  necessary  to  file  with 
this  Department  a  copy  of  the  will  of  the  deceased  and  a  copy  of  the  inventory 
of  the  estate  (including  real  and  personal  property),  certified  by  the  proper  legal 
authority,  and  an  affidavit  of  the  executor,  reciting  the  date  of  death,  the  resi- 
dence of  deceased  at  time  of  death,  the  names  of  all  beneficiaries  named  in  the 
will  who  survived  the  testator,  and  their  respective  relationship  to  decedent; 
also,  when  possible,  statement  of  debts,  administration  and  other  expenses. 

It  is  necessary  to  be  informed  of  the  total  value  of  the  estate,  both  as  to 
real  and  personal  property. 

Intestate  estates  can  supply  like  information  by  affidavit  of  administrator. 

In  case  of  life  interest,  vested  or  contingent  remainders,  etc.,  forming  part 
of  an  estate,  affidavits  should  include  the  age  at  time  of  death  of  decedent,  of 
life  tenants,  beneficiaries,  etc.,  and  such  other  information  as  may  assist  in  de- 
termining the  value  thereof. 

Statements,  unless  sworn  to,  are  unacceptable.  Documents  forwarded  are 
for  filing  purposes,  hence  must  remain  here,  constituting  the  action  taken. 


Form  of  Corporation  Requirement 

The  Pennsylvania  Railroad  Company,  Philadelphia,  Pa.,  issues  the  following 
circular  relating  to  transfers  of  its  stock  and  also  stock  of  other  companies  in- 
corporated in  Pennsylvania: 

Executors,  administrators,  guardians  and  other  representatives  of  the  es- 
tates of  decedents  and  minors  acting  under  letters  testamentary,  or  of  ad- 
ministration or  other  authority  granted  by  or  under  the  laws  of  any  State  or 
Territory  of  the  United  States  other  than  Pennsylvania,  or  of  any  kingdom, 
state,  sovereignty,  or  country,  will,  before  being  permitted  to  transfer  stock 
of  this  Company  standing  in  the  names  of  decedents  or  minors,  be  required  to 
comply  with  the  provisions  of  the  Act  of  Assembly  of  this  State,  of  which  the 
following  is  a  copy: — 

"AN  ACT  RELATING  TO  FOREIGN  EXECUTORS,  ADMINISTRATORS, 
GUARDIANS,  AND   REPRESENTATIVES   OF   DECEDENTS   AND 
WARDS."     Approved  April  8th,  1872. 

"Section  1.  That  is  shall  and  may  be  lawful  for  any  executor,  administrator, 
or  other  person  representing  the  estate  of  any  decedent,  or  for  any  guardian  or 
other  legal  representative  of  the  estate  of  a  minor,  acting  under  letters  test- 
amentary or  of  administration,  or  other  authority,  granted  by  or  under  the 
laws  of  any  other  State  or  Territory  of  the  United  States,  or  of  any  kingdom, 

52 


state,  sovereignty,  or  country,  to  transfer  any  or  all  shares  of  stock  and  regis- 
tered loan,  or  either,  of  any  incorporated  company  of  this  Commonwealth, 
standing  in  the  name  of  any  decedent,  minor,  or  cestui  que  trust,  and  to  re- 
ceive the  dividends  and  interest,  or  either  thereof,  whenever  a  duly  authenticated 
copy  of  the  will,  or  other  grant  of  authority  under  which  such  transfer  or  re- 
ceipt is  proposed  to  be  made,  shall  have  been  filed  in  the  office  of  the  register 
of  wills  for  the  county  in  which  such  incorporated  company  has  its  transfer 
office  or  principal  place  of  business;  and  all  transfers  of  stock  or  loans,  or  re- 
ceipts for  dividends  or  interest,  heretofore  made  by  foreign  executor,  adminis- 
trator, guardian,  and  others  acting  as  aforesaid,  are  hereby  validated." 

The  principal  place  of  business  and  transfer  office  of  this  Company  are 
situated  in  the  county  of  Philadelphia,  and  therefore  the  duly  authenticated  copy 
of  the  will  or  other  grant  of  authority  referred  to  in  the  Act  of  Assembly  should 
be  filed  in  the  office  of  the  Register  of  Wills  for  this  county,  whose  address  is 
City  Hall,  Philadephia,  Pa.  The  Register  of  Wills  requires: — Authenticated  copy 
of  Will  and  Letters  testamentary,  under  Section  906  of  the  Revised  Federal 
Statutes,  that  is— Certificates  of  the  Official  Custodian  of  the  Document,  Pre- 
siding Judge  and  Clerk  of  Court.  Upon  compliance  with  these  requisites,  he 
will  furnish  a  certificate,  which  shall  be  left  with  this  Company  as  evidence 
of  the  authority  of  the  representative  to  act.  His  fee  for  this  service  is  $1.50 
for  filing  papers  and  $.50  for  issuing  certificate. 

Executors,  administrators,  guardians,  committees  over  lunatics  and  trustees 
will  not  be  permitted  to  transfer  to  themselves  individually  without  an  order  of 
court.  This  rule  applies  also  where  several  of  them  seek  to  transfer  to  one  of 
their  number  individually,  or  to  one  individually,  and  a  stranger.  A  simultaneous 
transfer  through  an  intermediary  will  not  be  permitted. 


New  York  Stock  Exchange  Rules  for 
Delivery 

1.  Securities  admitted  to  dealings  upon  the  New  York  Stock  Ex- 
change, Registered  and  Transferable  in  the  Borough  of  Manhattan,  City 
of  New  York,  in  conformity  with  the  requirements  of  Section  1,  Article 
XXXIII  of  the  Constitution,  are  a  delivery: 

(a)  Certificates  of  Stock  for  100  shares  or  odd  lots  aggregating  100 

shares,  with  irrevocable  Assignment  for  each  Certificate,  and 
in  the  name  of  a  member  or  a  member's  firm,  registered  and 
doing  business  in  the  Borough  of  Manhattan.  Certificates  for 
the  exact  amount  or  aggregating  the  amount  of  an  odd  lot. 

(b)  Or  with  irrevocable  Assignment  witnessed  by  a  member;  or  cor- 

rectness of  signature  guaranteed  by  a  member  or  a  member's 
firm. 

(c)  Or  with  irrevocable  Assignment  and  each  Power  of  Substitution 

witnessed  by  a  member ;  or  correctness  of  signature  guaranteed 
by  a  member  or  a  member's  firm. 

(d)  Coupon   bonds  payable  to  Bearer,  in  denominations  of  $500  or 

$1,000  each,  with  proper  coupons  of  the  bond's  number  securely 
attached.  Small  bonds,  under  $500,  only  in  special  transactions. 
The  money  value  of  a  missing  coupon  may  be  substituted  only 
with  the  consent  of  the  Committee  on  Securities  for  each 
delivery. 

53 


Coupon   Bonds    exchangeable   into   Registered   Bonds   and   Con- 
vertible Bonds  must  carry  all  unpaid  and  unmatured  Coupons. 

(e)  Registered   Coupon  Bonds  in  denominations  of  $500  or  $1,000 

registered  to  Bearer,  or  when  transfer  books  are  closed  with 
an  Assignment  to  Bearer  for  each  bond  by  a  member  or  his 
firm  or  witnessed  by  a  member,  or  the  correctness  of  the  sig- 
nature guaranteed  by  a  member  or  his  firm,  registered  and  doing 
business  in  the  Borough  of  Manhattan. 

(f )  Registered  Bonds  in  denominations  not  exceeding  $10,000  properly 

assigned. 

2.  Securities  contracted  for  in  amounts  exceeding  100  shares  of  Stock 
or  $10,000  in  Bonds  may  be  tendered  in  lots  of  100  shares  of  Stock  or  $10,000 
in  Bonds,  or  any  multiple  of  either,  and  must  be  accepted  and  paid  for  as 
delivered. 

3.  Securities  with  Assignment,  or  Power  of  Substitution,  signed  by  an 
Insolvent,  are  not  a  delivery.    During  the  close  of  transfer  books,  such  se- 
curities held  by  others,  than  the  insolvent,  are  a  delivery  if  accompanied 
by  an  affidavit  for  each  certificate  or  bond,  that  said  securities  were  held  on 
a  date  prior  to  the  insolvency. 

Securities  with  Assignment  or  with  Power  of  Substitution,  guaranteed 
by  a  member  or  his  firm,  suspended  for  Insolvency,  are  not  a  delivery  and 
must  be  reguaranteed  by  a  solvent  member  or  his  firm. 

4.  Securities  with  an  Assignment  or  a  Power  of  Substitution  executed 
by  a  firm  that  has  ceased  to  exist  are  not  a  delivery,  except  during  the 
closing  of  the  transfer  books.     The  Assignment  must  be  proved  or  ac- 
knowledged before  a  Notary  Public.     (Form  No.  3,  and  for  witness  No.  9.) 

Securities  with  either  the  Assignment  or  any  Power  of  Substitution 
witnessed  by  a  deceased  person  are  not  a  delivery. 

5.  Securities  assigned,  or  a  Power  of  Substitution  by  a  firm  that  has 
dissolved  and  is  succeeded  by  one  of  the  same  name,  are  a  delivery,  when 
the  new  firm  shall  have  signed  the  statement  "Execution  guaranteed,"  under 
a  date  subsequent  to  the  formation  of  the  new  firm. 

6.  Securities  in  the  name  of  a  corporation  or  an  institution,  or  in  a 
name  with  official  designation,  are  a  delivery  only  when  the  statement, 
"Proper  papers  for  transfer  filed  by  assignor"  is  placed  on  each  assignment 
and  signed  by  the  Transfer  Agent. 

7.  Securities  with  an  Assignment  or  a  Power  of  Substitution  signed  by 
a  deceased  person,  Trustees,  Guardians,  Infants,  Executors,  Administrators, 
Assignees  and  Receivers  in  Bankruptcy,  Agents  or  Attorneys  are  not  a 
delivery. 

8.  Securities  assigned  by  a  Married  Woman  are  not  a  delivery.     A 
joint   assignment   and   acknowledgment  by   husband   and   wife   before   a 
Notary  Public,  will  make  such  security  a  delivery  only  while  the  transfer 
books  are  closed.    (Form  No.  4.) 

9.  Securities  in  the  name  of  an  Unmarried  Woman,  with  the  prefix 
"Miss,"   are   a   delivery   without   notarial   acknowledgment,    when   signed 
"Miss." 

10.  Securities  in  the  name  of  an   Unmarried   Woman   (without  the 
prefix  "Miss"),  or  a  Widow  are  a  delivery  only  when  the  Assignment  is 
acknowledged  before  a  Notary  Public.     (Form  No.  5.) 

54 


11.  Securities   of   a   Company   whose   transfer   books    are    closed   in- 
definitely for  any  reason,  legal  or  otherwise,  the  Assignment  and  each  Power 
of   Substitution  must  be  acknowledged  before  a  Notary   Public.      (Form 
Nos.  2,  3 ;  for  witness,  8  and  9.) 

12.  Securities  in  the  name  of  Foreign  Residents  are  not  a  delivery  on 
the  day  the  transfer  books  are  closed  for  payment  of  a  Dividend  of  Registered 
interest,  and  reclamation  can  only  be  made  on  that  day. 

13.  Securities  in  the  name  of  Foreign  Residents  must  be  accompanied 
by  an  acknowledgment  before  a  United  States  Consul  or  Morgan,  Grenfell 
&  Co.,  London,  when  required  by  transfer  agents. 

Several  Companies  having  transfer  offices  at  Grand  Central  Station, 
New  York,  make  this  requirement. 

14.  Certificates  of  stock  on  which  the  name  of  a  transferee  has  been 
filled  in  error,  may  be  made  a  delivery  during  the  closing  of  the  transfer 
books  by  ruling  of  the  Committee  on  Securities.     Necessary  form  of  re- 
lease, cancellation  and  reassignment  will  be  furnished  on  application  to  the 
Committee  on  Securities. 

15.  An  endorsement  by  a  member  or  his   firm  registered  and  doing 
business  in  the  Borough  of  Manhattan,  or  the  signature  as  a  witness  by 
such  a  member,  of  a  signature  to  an  Assignment  or  a  Power  of  Substitu- 
tion, is  a  guarantee  of  its  correctness.    Each  Power  of  Substitution,  as  well 
as  the  Assignment,  must  be  so  guaranteed,  or  witnessed. 

16.  "Coupon  Bonds  issued  to  Bearer,  having  an  endorsement  upon  them 
not  properly  pertaining  to  them  as  a  security,  must  be  sold  specifically  as 
'Endorsed  Bonds,'  and  are  not  a  delivery,  except  as  'Endorsed  Bonds!  " 

Extract  from  Resolutions  of  Governing  Committee,  adopted  May  23, 
1883. 

A  definite  name  of  a  person,  firm,  corporation,  an  association,  etc., 
such  as  "John  Smith,"  "Brown,  Jones  &  Co./'  "Consolidated  Bank,"  ap- 
pearing upon  a  Coupon  Bond,  and  not  placed  there  for  any  purpose  of  the 
Company  by  any  of  its  officers,  implies  ownership,  and  is  an  "Endorsed 
Bond"  under  the  above  resolution. 

17.  Any  endorsement  on  a  Coupon  Bond  stating  that  it  has  been  de- 
posited with  a  State  for  bank  circulation  or  insurance  requirement,  may  be 
released  and  release  acknowledged  before  a  Notary  Public;  it  will  then  be 
a  delivery  as  a  "Released  Endorsed  Bond." 

"Rights"  to  Subscribe 

18.  Assignments  of  "Rights,"  with  the  signature  of  the  assignor  wit- 
nessed and  guaranteed  in  the  same  manner  as  other  Assignments,  as  pro- 
vided in  these  rules,  are  a  delivery : 

(a)  An  Assignment  of  the  "Rights"  accruing  on  each  100  shares;  or, 

Assignments  of  "Rights"  on  odd  lots  aggregating  the  "Rights" 
on  100  shares. 

(b)  An  Assignment  for  the  exact  amount,  or  Assignments  aggregat- 

ing the  amount,  on  a  sale  of  the  "Rights"  accruing  on  an  odd  lot 
of  stock. 

55 


19.  Assignments    of    "Rights"   in   the   name   of   a   Married    Woman, 
Widow  or  an    Unmarried   Woman  are   a   delivery   without   notarial   ac- 
knowledgment. 

20.  Assignments  of  "Rights"  made  by  a  deceased  person  or  a  firm 
that  has  ceased  to  exist  are  not  a  delivery  and  must  be  taken  back  by  the 
party  delivering  them. 

21.  Assignments  of  "Rights"  signed  by  Trustees  etc.,  or  for  corpora- 
tions, etc.,  are  not  a  delivery,  until  passed  by  the  Committee  on  Securities. 


Forms  for  Notarial  Acknowledgments  and 

Depositions  Prescribed  by  the  Committee 

on  Securities 


Form  No.  2. 

Acknowledgment  by  an  Individual,  by  Whom  an  Assignment  or  a 
Power  of  Substitution  is  Executed. 


State  of 1 

|ss. 
County  of j 

On  this day   of 19 ....    before   me, 

a  Notary  Public  for  the  County  of personally 

appeared to  me  known,  and  known  to  me  to  be 

the  individual  named  in  the  within  Certificate,  and  described  in  and  who 
executed  the  foregoing  Instrument,  and  acknowledged  to  me  that  he  ex- 
ecuted the  same. 


:SEAL: 


If  used  for  a  Power  of  Substitution,  substitute  for  the  word  Instru- 
ment,  "Power   of   Substitution,   dated 19 ,"   the   date 

referred  to   filled  in. 

56 


Form  No.  3. 

Acknowledgment  for  Firm. 

State  of ] 

Us. 
County  of J 

On   this day   of 19 before   me, 

a  Notary  Public  for  the  County  of personally 

appeared to  me  known,  and  known  to  me  to  be 

one  of  the  firm  of named  in  the  within  Cer- 
tificate, and  described  in  and  who  executed  the  foregoing  Instrument,  and 
acknowledged  to  me  that  he  executed  the  same  as  the  act  and  deed  of  said 
firm. 


:SEAL : 


If  used  for  a  firm  that  has  dissolved,  omit  the  word  "be"  in  fourth  line 
and  substitute  the  words  "have  been  on 19 . ..." 

If  used  for  a  Power  of  Substitution,  executed  by  a  firm  that  has  dis- 
solved, substitute  for  the  word  Instrument,  "Power  of  Substitution,  dated 
,  .19 "the  dates  referred  to  filled  in. 


Form  No.  4. 

Joint  Acknowledgment  of  Execution  of  an  Assignment  Made  by  Hus- 
band and  Wife. 

State  of ] 

Us. 
County  of J 

On     this day     of 19 before     me 

came    and her   husband,   both   of   them 

known  to  me,  and  they  severally  acknowledged  that  they  executed  the  fore- 
going (or  within)  Assignment  and  Power  of  Attorney,  for  the  purpose 
therein  mentioned. 


:SEAL : 

57 


Form  No.  8. 

Deposition  by  a  Witness  of   the  Execution  of  an  Assignment  or  a 
Power  of  Substitution  by  an  Individual. 

State  of ) 

[ss. 
County  of ) 

On   this day   of 19 ....    before   me, 

a  Notary  Public  for  the  County  of personally 

appeared to  me  known,  who  being  by  me  first  duly 

sworn  did  depose  and  say  that  he  resides  at that  he  knew 

named  and  described  in  the instrument, 

which  was  signed  in  witness'  presence. 


:SEAL: 


If  used  for  a  Power  of  Substitution,  executed  by  an  individual,  see 
instructions  in  Form  No.  2. 


Form  No.  9. 

Deposition  by  a  Witness  of   the  Execution  of  an  Assignment  or  a 
Power  of  Substitution  by  a  Firm. 

State  of ) 

[ss. 
County  of ) 

On  this day   of 19 before  me, 

a  Notary  Public  for  the  County  of personally 

appeared to  me  known  who,  being  by  me  first  duly 

sworn,  did  depose  and  say  that  he  resides  at that  he 

knew and  kn'ew  him  to  be  one  of  the  firm  of 

named  and  described  in  the instrument, 

which  was  signed  in  witness'  presence. 


:SEAL: 


If  used  for  a  firm  that  has  dissolved,  or  for  a  Power  of  Substitution 
executed  by  a  firm  that  has  dissolved,  see  instructions  in  Form  No.  3. 

58 


Accurate  Information  Is  Financial  Insurance 

Don't  Be  a  "Sleeping  Investor" 

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to  the  Rock  Island,  New 
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59 


The  Men    Who   Know! 


LET  THEM  SOLVE  YOUR  PROBLEMS 

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Otto  H.  Kahn —  Financier,  known  throughout  the  world 

Maurice  L.  Muhleman —  Ex-Deputy  Treasurer  United  States 

Ivy  L.  Lee —  Railroad  Expert  of  International  reputation 

Adolph  Lewisohn —  President  Miami  Copper 

Hon.  W.  C.  Redfield—     Secretary  of  Commerce,  U.S.A. 

Charles  E.  Mitchell —       President  National  City  Company 

E.  P.  Ripley —  President  Atchison  Railroad 

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JOHN  STEWART  is  an  ear- 
I  nest,  successful  business 
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15  of  the  thousand  and  one  things  he  learned: 

1.  How    the    late    J.    Pierpont   Mor- 
gan   invested.      An    analysis    of 
his  wealth. 

2.  How   George   Whelan    made    dol- 
lars    grow     where     nickels     had 
grown    before.       Secrets    of    the 
United   Cigar   Stores'   success. 

3.  Why     the     Machinery     of     Wall 
Street     exists,     how     it     works, 
what  it  accomplishes. 

4.  How  to  invest  dividends.     Bonds 
versus      Stocks.        Real      Estate 
Mortgages. 

5.  Are    Farm    Mortgages    good    in- 
vestments?     What    the    Investor 
must  consider. 

6.  What's     the     matter    with     New 
Haven?     Why   the  stock  so   per- 
sistently declines. 

7.  What      will      happen      to      War 
Stocks  after  the  War? 


8.  What  are   the  possibilities  in  U. 
S.   STEEL  Common. 

9.  Are   "Movies"   good   investments? 

10.  What     will     the     Union     Pacific 
Railroad     do     with     its    accumu- 
lated profits?     This  year's  earn- 
ings. 

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about    financial    investment    and 
business   conditions. 

12.  Is  the  Oil  Boom  over?     Will  de- 
cline   in    price    of    oil    mean    low 
prices  for  Oil   Securities? 

13.  Who      is     holding     the      stocks? 
Investors  or  Speculators? 

14.  Why    a    first    mortgage    bond    is 
not    necessarily    the    best    mort- 
gage.    Pitfalls  to  be  avoided. 

15.  Would  Peace   break  the  price  of 
wheat?     Would  it  raise  the  price 
of  cotton? 


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Knowledge  Through  Reading 

Is  Less  Costly  Than 

Knowledge  By  Experience 


The  following  ten  volumes  contain  the  best  that 
has  been  written  on  speculation  and  investment. 

A  Real  Understanding  of  thetechnical  conditions 
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lutely necessary  to  trade  or  invest  successfully. 

How  to  Read  the  Financial  Page     -     -  $1.04 
Fourteen  Methods  of  Operating 

In  the  Stock  Market 1.06 

Psychology  of  the  Stock  Market          -     -  1.06 

Investing  for  Profit 1.06 

The  Machinery  of  Wall  Street    -     -     -  1.06 

The  Business  of  Trading  in  Stocks       -  2.06 

Studies  in  Tape  Reading 3.06 

Trading  in  Wheat       ......     -  1.06 

Financial  Statements  Made  Plain      -     -  1.06 

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